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Good morning ...

Precious Metals

Gold was slightly lower until the first hour of the New York session yesterday, when it suddenly took off, pushing past $975 just after the noon hour, but then it got severely taken down, shedding more than $20 before leveling off in the Globex and finishing at $957.00/oz., down $2.30. Overnight, gold has edged higher.

Platinum's long slide shows no sign of ending, as the metal slid all day long to its intraday low of $1866/oz., down $34. Overnight, platinum is slightly higher.

Silver tracked gold very closely, slipping to a close at $18.54/oz., down 23 cents. Overnight, silver is trending higher.

Thursday's results were not unexpected for the precious metals, as the dollar moved slightly higher against the euro, equities rallied again, and crude's slide was extended for another day. Platinum continues to search for a support level, with none in sight.

The session was really a tale of two days, as Kitco's Jon Nadler noted.

"The first half of Thursday proved to be a better day for gold as morning dollar weakness and oil strength kept the number of additions to open interest growing nicely," Nadler said.

"The afternoon, however, presented a different set of conditions as oil started to fall toward $130 once again, and the greenback climbed toward 72.25 on the index," he added.

To see gold consolidating met the expectations of James Moore, of TheBullionDesk.com. "With investor risk appetite showing a slight improvement and having posted aggressive gains last week, it comes as no surprise to see the metal correct," Moore wrote.

"To avoid a deeper correction, gold needs to establish a base above the $953 to $955 chart level, but given the backdrop of rising inflation and recessionary pressures and increased financial-market jitters, we anticipate investors will view dips favorably, with the metal ultimately set to rechallenge $1,000," Moore added.

And Burton R. Schlichter, of New World Trading, believes that gold is building support, saying that "speculators and traders still have a 'buy the dip' attitude."

Currencies and Economic News

In the currency market, the dollar edged marginally higher against the euro. Late Thursday, the euro was trading at $1.5812 vs. $1.5823 on Wednesday.

"Risk appetite is rising. With commodities coming off the boil, that's dollar-positive as well," said Andrew Wilkinson, senior market analyst at Interactive Brokers.

The Commerce Department reported that new construction on single-family homes fell 5.3%, to a fresh 17-year low, but the headline was that home building projects started in June surprisingly rose 9.1 percent in June, due chiefly to a change in New York City building codes. Absent that change, starts would have decreased by 4%.

In other economic news, the Federal Reserve Bank of Philadelphia said manufacturing in the region weakened for an eighth straight month in July, while a key inflation gauge rose to the highest level in more than 28 years.

Three-fourths of companies surveyed reported paying higher prices for inputs, while only a third said they were able to raise their own prices. The prices-paid index rose to 75.6, the highest since March 1980.

And the buck may have been undermined by a report in the Financial Times, which said that large Asian and Middle Eastern sovereign wealth funds are seeking to further trim their exposure to the greenback. The unsourced report said an unidentified Gulf fund has cut its dollar-denominated holdings to less than 60% from more than 80% a year ago.

Energy

In the energy market Thursday, crude for August delivery had a third down day in a row, dropping another $5.31 to close at $129.29/barrel. August reformulated gasoline dipped 12 cents, to $3.16/gallon.

Crude has now tumbled almost $16/barrel, about 11%, during the three-day selloff.

The reason for the decline is elementary, says Darin Newsom, senior analyst at DTN. "We have gasoline demand coming down, and that's putting pressure on the market ... Bullish demand news just simply isn't there."

The effect of international events was mixed. On one hand, Eni SPA, Italy's biggest oil company, said it has suspended production of 47,000 barrels a day in Nigeria due to "a sudden drop of pressure" on pipelines. The causes of the incident remain unknown.

On the other, the U.S. is reportedly considering establishing an embassy in Iran in the next month, according media reports. If it happens, it would establish the U.S.'s first diplomatic contact with that country in 30 years.

Base Metals

The base metals were mostly in positive territory on Thursday. Copper was flat until the New York open, then climbed higher through the morning, before easing to a finish at $3.787/lb., up more than 3 cents. Nickel was tightly rangebound throughout the day, ranging between $9.20 and $9.40 before settling at $9.2797/lb., up 3 cents. Zinc traded very erratically, but with a slight uptrend, ending at $0.8244/lb., up a penny and a half. Aluminum was little changed, giving up three-quarters of a cent, to $1.3812/lb., while lead staged a modest rally, adding a penny and a third, to $0.8944/lb.

Copper led most of the industrial metals higher on Thursday, as the general doom and gloom gave way to a spurt of optimism.

"Housing starts up 9 percent show a nice pick-up" in construction demand, said John Gross, publisher of the Copper Journal,

That's bullish for copper since builders are the number one users. "People should be keeping their eye on the building and construction sector, as things could start turning around there," said Gross.

The metal also benefited from technical buying.

And there are supply issues. Support for copper prices is "mostly coming from supply problems," in the opinion of Michael Widmer, an analyst at Lehman Brothers.

However, "Despite the positive tone, copper and other base metals will likely face further selling pressures as investors de-risk portfolios amid an uncertain economic environment," said Bart Melek, of BMO Nesbitt Burns.

Regarding nickel, "The only evidence we see of a rebound is steady outflows of LME stocks,'' said Randy North, of RBC Capital Markets in London. "Our contacts in the physical markets tell us that consumer activity is healthy. However, material is easy to come by."

And Citigroup analysts predicted that production of aluminum may decline 2 million tons, or 5 percent of annual output, this year, because of "power supply problems." Prices will average $2 a pound in 2009 and "rise further in 2010," they wrote.

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

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