The Daily Resource 07/15/2008

Precious Metals

Gold was flat in the far East, dipped between the London and New York opens, bottoming at $955, but then took off with no significant setbacks for the rest of the day, finishing at $972.10/oz., up $6.80. Overnight, gold is sharply higher.

Platinum still can't seem to generate any positive momentum, as it gave back all of its gains in the far East and then some, falling as low as $1990 at the NYMEX open before finding some buying support and rising to end at $2001/oz., down $17. Overnight, platinum has been flat.

Silver also hit its intraday low, at $18.60, just as New York opened, but went vertical from there nearly straight through to the Globex, then drifted a bit lower to close at $19.09/oz., up 29 cents. Overnight, silver is trending higher.

It was another very strong day for gold and silver, with support offered by the usual suspects, rising oil, sliding equities, and a dollar that couldn't hold most of its early gains. Platinum, however, continued to lag, primarily on concerns that the struggling auto industry will have diminished demand for the metal in the near term.

As he often does, Peter Spina, of Goldforecaster.com, had a cogent summary of why the markets are doing what they're doing, writing that, "Investors had the weekend to further digest the latest unfolding financial debacle and wondering where their insurance policy is. Those who have assessed the risk the way I view it are driving the investment demand in the gold and silver markets. I do not believe there is much of a speculative premium in the gold market as other have suggested. I could see another pullback to the low $900's, but the door is now open for gold to stage another rally to record levels. Again, this gold rally may be another false start but I now believe there will not be many more false starts going forward, under this climate of failing banking and financial institutions.

"The news of Fannie and Freddie is just confirmation that the Federal government is willing to effectively nationalize and print money to bailout these monstrous (ticking) financial time bombs. With the news of the second largest bank failure on Friday afternoon also adding to the financial jitters, one must now question the integrity of the FDIC with some $50 billion to work with. Once the FDIC reserve is extinguished, where will further billions come from when more and more banks continue to crumble? Confidence is deteriorating and that will only foster this secular gold bull market!

"It is not too difficult to see the path we are on and headed. Investors who now understand this are flocking into the metals."

Nothing there that we would disagree with.

Currencies and Economic News

In the currency market, the dollar lost much of its early gains against the euro, but managed to hang on in positive territory. Late Monday, the euro was trading at $1.5904 vs. $1.5931 on Friday.

The market at first reacted enthusiastically to weekend developments, in which the Treasury Department and the Federal Reserve moved jointly to back up Freddie Mac and Fannie Mae, but that good cheer rapidly wore off as the day wore on.

Significantly, the stock prices of both companies continued to fall yesterday.

"It would seem that it's not so much the ability of the Fed to act as a backstop that's the issue. In itself that's a dollar-positive factor," said Andrew Wilkinson, senior market analyst at Interactive Brokers.

No, he went on, "The drag on the dollar is the reality that two largest housing lenders might need to call on the Fed to play ball. With a persistence of the underlying problems traders are in no mood to go long the dollar despite clear signs of slowing growth in Europe and a taming of inflationary pressures in the U.K."

And Neil Mellor, a currency strategist at Bank of New York Mellon, wrote that the government's actions do nothing but "plug the latest leaks in the U.S. financial system."

Mellor added that, "In fact, if anything, the plans simply serve to underline the severity of the sector's problems."

Energy

In the energy market Monday, crude for August delivery vacillated through a $4 range between high and low, settling at a nervous $145.18, up 10 cents. August reformulated was essentially unchanged, at $3.558/gallon.

Traders reacted to the beginning of a scheduled five-day walkout by workers for Brazil's Petrobras. The strike will idle oil output of about 400,000 barrels a day.

Analysts hastened to say that the strike is unlikely to significantly impact production. Petrobras has implemented a contingency plan and announced that production was down only 7% in the first day of the strike.

Still, 13 platforms in Brazil's Campos Basin-responsible for 80% of the country's production-are participating, and 33 of Petrobras's 42 platforms in the region are expected to join in.

Elsewhere, President Bush announced the lifting of a ban on drilling in offshore U.S. waters, a move seen as largely symbolic. While his executive order "will put pressure on national lawmakers and local governments, it is not by itself sufficient to conquer a complex web of competing incentives," wrote analysts at Friedman Billings Ramsey.

Base Metals

The base metals were mixed on Monday. Copper was down in the pre-dawn hours, rose from there to mid-morning, but then sagged again to finish little changed at $3.8418/lb., up three-quarters of a cent. Nickel plunged in the pre-dawn hours, then tried to rally but eventually gave up all of its gains, to close just off its intraday low at $9.3417/lb., down 31 cents. Zinc fell in the pre-dawn hours, then traded sideways, ending at $0.9005/lb., down more than three-quarters of a cent. Aluminum rallied off its pre-dawn lows, and managed to hold most of its gains at $1.4807/lb., up a half-cent, while lead had a strong morning rally, adding a penny and a quarter, to $0.8943/lb.

Copper held up as the threat of another Peruvian strike caused concerns about supply problems going forward.

Freeport-McMoRan's Peruvian copper-mine workers at the Cerro Verde pit failed to reach an agreement over issues including better working conditions and are planning to walk out on Wednesday, a union official said.

"The thing that copper has to guard against is a potential supply shortage," said Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. "Supplies are tight, and there's no room for disruptions."

Goodis added that, "There's still a lot of copper demand out there ... And with the tight supply situation, it provides the path for copper to keep going higher."

The word on copper out of China was mixed. The country's apparent consumption of copper increased 2.4% in the first five months of this year, a steep drop from the 28.66% growth in the same period of last year. And industry analysts have adjusted the forecast of China's demand for copper from the former two-digit growth to single-digit.

China's output was nearly 1.5 million tons of copper, January-May, a 19.1% increase that exceeded the 11.5% growth in the same period last year. But copper imports were only 486,400 tons, a 26.34% drop, year over year.

Overall, analysts expect China's output of refined copper to be more than 3.8 million tons for the whole of this year. That would be an increase of about 10% over 2007.

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

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