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Good morning ...

Precious Metals

Gold rose to $933 in late Hong Kong trading yesterday, but began selling off during the London session and continued to do so until late morning in New York, where it bottomed at $913 before rallying back to finish at $919.70/oz., down $6.70. Overnight, gold has been flat.

Platinum still can't gain any traction, as it fell from the far East through the mid-point of New York trading before a modest updraught carried it to $1939/oz., down $17. Overnight, platinum has pushed higher.

Silver fared much better than its sister metals, staging a strong rally back from its low of $17.44 at the New York open and overcoming a late morning drop to close at $17.78/oz., off just a penny. Overnight, silver has edged higher.

Investors continued to be unenthusiastic about the precious metals, although silver stayed in positive territory for most of the day, only slipping a little into the red in late Globex trading.

Optimists had to be heartened by the fact that the selloff was relatively minor, considering that the usual suspects were lined up in contrary positions, with the dollar rallying higher and the crude price savagely beaten down, lessening gold's appeal as an inflation hedge.

Also factoring in, "A second wave of gold selling was triggered ... when increases in safe-haven currencies like the yen and Swiss franc, and weaker housing data, didn't lend support to gold prices," said James Steel, chief commodities analyst at HSBC.

There's definitely some emerging bearish sentiment, and it could be seen in comments like this: "When you prick a balloon, you get an explosion," said Leonard Kaplan, of Prospector Asset Management in Evanston, Illinois. "You're looking at a weakening economy, weakening demand for all commodities, and a fear of greater government intervention in these markets."

But, "Gold's inverse correlation to equity and bond markets over the medium to long term has clearly been shown in recent months and this inverse correlation will likely continue in the coming months," wrote Mark O'Byrne, of Gold & Silver Investments, Ltd.

Currencies and Economic News

In the currency market, the dollar moved higher against the euro. Late Tuesday, the euro was trading at $1.5666 vs. $1.5727 on Monday.

Traders reacted positively to a closely-scrutinized speech by Fed Chair Ben Bernanke.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end," Bernanke said.

"The talk has apparently assuaged credit concerns slightly," wrote analysts at Action Economics.

Meanwhile, over in Tokyo, "Little was expected on currency policy issues from the summit of G8 leaders and this is pretty well ... how things turned out," wrote Simon Derrick, a foreign-exchange strategist at Bank of New York Mellon.

The only reference in the joint G8 statement on the world economy was a call for "some emerging economies with large and growing current account surpluses" to allow their exchange rates to move, an apparent swipe at China for failing to allow further appreciation of the yuan.

The day's only significant number was the index of sales contracts on previously owned U.S. homes from the National Association of Realtors, which showed a 4.7% decline from April to May. The index was also down 14% year over year.

Energy

In the energy market Tuesday, crude for August delivery was assaulted by sellers for the second day in a row, plunging more than $6 before edging back slightly to close at $136.04, down $5.33 (3.8%), the biggest loss in nearly 4 months. July reformulated gasoline fell 12 cents, to $3.363/gallon.

Traders responded to the dollar rally, and we're probably "starting to see some of the fluff come out of the market," said Phil Flynn, of Alaron Trading.

Flynn cited government projections that oil consumption will drop, adding that, "The market is facing up to the fact that we're almost halfway through the summer driving season and demand is shrinking."

The Energy Information Administration's monthly report projected that U.S. petroleum consumption will shrink by 400,000 barrels a day in 2008, nearly 40% more than EIA's June projection of a decline of 290,000 barrels.

But the dollar may be key, as it "is perhaps the key prop holding up energy prices, and should it stage a technical rebound, it could spark a rather substantial sell-off in a number of commodity complexes," wrote Edward Meir, of MF Global.

Meanwhile Texas oilman T. Boone Pickens launched a nationwide media blitz to promote his plan to reduce American dependence on foreign oil, by cutting demand by more than a third in the next two years. Pickens is promoting wind power and natural gas as viable alternatives to spending $700 billion a year for foreign oil. (Full disclosure: Boone is heavily invested in both.)

Base Metals

The base metals were mostly mired deep in the red on Tuesday. Copper was pounded, beginning in the pre-dawn hours and continuing right through to about the noon hour, after which it leveled off to finish just off its intraday low at $3.7771/lb., 11 1/4 cents. Nickel was sold off more erratically, but it too closed barely above its intraday low, at $9.1966/lb., down more than 21 cents. Zinc hit a low of $0.77 at the noon hour, but rallied a bit from there to end at $0.7877/lb., down 2 3/4 cents. Aluminum took one to the chin, falling more than 7 1/2 cents, to $1.398/lb., while lead managed to buck the trend, adding 2/3 of a cent, to $0.7285/lb.

Copper plummeted to a 3-week low as traders continued to sell off in the wake of the metal's inability to hold the $4 level attained last week, but all of the metals have been caught up in a multi-day decline on concerns about the viability of continuing global economic growth.

"People are selling commodities based on fear," said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. "There's the feeling that everything could get worse before it gets any better. If the credit crunch weighs down growth, that's not going to be good for copper or any commodity."

As an indicator of the broad-based nature of the selloff, the Reuters/Jefferies CRB Index fell 2.8% Monday, the biggest drop since March 19, then followed up with a decline of another 2.6% yesterday.

On the supply front, copper inventories monitored by the LME rose a modest 100 metric tons yesterday, to 122,175 tons.

The G8 leaders chipped in by saying that rising raw-material costs pose a "serious challenge" to the global economy.

"It appears people think the world is going to end," said Evan Smith, of U.S. Global Investors in San Antonio. "This idea of slower growth has gotten people scared about commodity demand. People are taking risk off the table now and moving into more stable sectors."

Of course, if he knows where a 'stable sector' might be found these days, we'd love to hear about it.

That's what's happening ... see you tomorrow!

Phoenix Matachewan Mines Inc. (PMM) has a major gold exploration project in Nevada; a major zinc exploration play - the largest new zinc play in Canada; and a significant gold project with Agnico-Eagle moving towards production at its Swanson gold ore body near Val d'Or QC.

Learn more about Phoenix Matachewan.

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