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Good morning ...

Precious Metals

Gold started down in Hong Kong and, despite a mini-rally early in the New York session, headed lower for most of the day, finishing just off its intraday low at $919.60, down $25.30. Overnight, gold is trending higher.

Platinum-what else?-continues to find non-support, although it did manage to come off its lows at the NYMEX mid-point, and end on an upnote at $1732/oz., down $65. Overnight, platinum has drifted lower.

Silver had sharper ups and downs than gold, but the high points were successively lower and it stumbled to a dismal close at $17.36/oz., down 57 cents. Overnight, silver has moved higher.

It was another bloody day for the precious metals, as all three went into freefall. The usual suspects remained firmly in opposition to the metals, with oil slipping further, the dollar continuing to strengthen, and equities pushing higher.

Dan Norcini, writing on jsmineset.com, summed up the day's action by saying, "We are all crude oil traders now or so it would seem. The entirety of the financial market system is now basically following the minute by minute gyrations in the crude oil market. As it moves lower, stocks move higher and so does the dollar. As it moves higher, stocks move lower and so does the dollar. Commodities in general then take their cue from that which as you no doubt observed today, were being spit out by the hedge funds like some foul tasting broth ..."

Expressing further distaste for developments, Norcini added that, "Gold ... was discarded like a bad habit causing it to crash through several important support levels on the chart. The mining shares did not fare any better as some of them gave up the ghost and decided to go bobbing for earthworms."

Bulls could only watch from the sidelines as, "We seem to be in the midst of a large-scale commodities sell-off," according to Zachary Oxman, of Wisdom Financial.

Oxman added that, "The stock market is catching a solid bid, and it feels much like early in February/March when we saw this very thing."

Kitco's Jon Nadler represented the bears, saying that, "At this point, we can no longer just look at options expiry and the rolling over of positions into the winter months for explanations ... Supports in gold gave way rather easily and unless some buying emerges near the $920 level, we could be facing a visit to the high $800's in the not so distant future."

Currencies and Economic News

In the currency market, the dollar moved strongly upward against the euro for a second straight day. Late Wednesday, the euro was trading at $1.5676 vs. $1.5784 on Tuesday.

"The U.S. dollar is broadly higher as the global markets and economy continues to pull back from the edge of the abyss that it was steering into a week ago," wrote strategists at Brown Brothers Harriman.

The buck also benefited from a day in which the only bad news was the Fed's Beige Book report, which had only four of 12 regional banks reporting stable, steady or improving growth. And inflation is bad, with all 12 districts reporting that prices are "elevated or increasing."

Traders shrugged that off, instead looking across the pond, where the euro was buffeted by some poor numbers. Industrial orders across the eurozone posted a 3.5% monthly drop and a 4.4% annualized decline in May, according to Eurostat.

That was way worse than economists' projections for a 2% monthly fall and a 1.7% annual gain.

Energy

In the energy market Wednesday, crude for September delivery debuted as front-month contract by emulating its immediate predecessors, closing at $124.44/barrel, down $3.98. September reformulated gasoline plunged 11.55 cents, to $3.05/gallon.

Traders' relief continued over Hurricane Dolly's lack of damage to energy facilities in the Gulf of Mexico.

In addition, the Energy Information Administration stoked bearishness with its weekly inventory numbers. The EIA reported that crude stocks declined by 1.6 million barrels in the week ended July 18, a bit less than expectations.

The EIA also said that gasoline supplies rose by 2.9 million barrels in the latest week, while distillate stocks gained by 2.4 million barrels. Both came in higher than expectations. Refineries were operating at 87.1% of capacity, as opposed to 89.5% the previous week.

Perhaps more important, Wednesday's EIA data showed that the economic slowdown is taking its toll on energy demand. Over the past four weeks, gasoline demand has averaged 9.3 million barrels per day, down 2.4% from the same period last year.

"We are finally seeing the impact of weaker economies on oil prices," said James Williams, of WTRG Economics. "It is often said that high oil prices cause recessions, but it is equally true that recessions cause low oil prices."

Base Metals

The base metals were mixed on Wednesday. Copper was off sharply early, but staged a strong rally around mid-morning that nearly got it back to even, finishing at $3.7824/lb., down a penny. Nickel started down in the late pre-dawn hours and continued south all day, crashing through the $8 level and closing at its intraday low of $8.8813/lb., down more than 30 cents. Zinc followed copper's track but did much better, pushing back into the black at $0.8535/lb., up 2 3/4 cents. Aluminum sagged, giving up a penny to $1.34/lb., while lead continued on its rampage, shooting back over the $1 mark to end at its intraday high of $1.0106/lb., up 4 cents.

Copper and aluminum were down modestly on the stronger dollar, but zinc rose the most in a week.

That led Donald Selkin, of National Securities Corp. in New York, to comment that, "If you are investing in copper, you should not keep your eye only on supply and demand, and the labor unrest in South America, but also on the strength of the dollar."

With a rising dollar, commodities lose some of their appeal to those holding other currencies, and the buck's advance spurred a market-wide selloff that saw the UBS Bloomberg CMCI index, which tracks 26 commodities, losing 1.4% yesterday.

Copper supply issues are certainly not going away, though. BHP Billiton said yesterday that output from Chile's Escondida mine may fall between 10 and 15% in the fiscal year to June 30, 2009, because of lower-quality ores. Escondida is the world's biggest copper mine and Billiton holds a 57.5% interest in it.

But BHP is not sitting on Escondida as it now exists. The company has made a big discovery near the old mine, and will spend $US327 million to develop it. Drilling at the prospect, called Pampa Escondida, revealed that it "contains at least 1 billion metric tonnes of porphyry-style mineralization," BHP said.

Zinc rose the most in a week, as customs data out of China, the world's largest producer and consumer of the metal, showed that the country remained a net zinc importer for a fifth consecutive month.

Sounding a cautionary note, however, was Barclays Capital, which wrote that "demand is weak, suggesting a build in unreported stocks."

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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