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Good Morning...

Precious Metals

It was a good day for the precious metals as gold, silver, and platinum were all up on the day. Gold was relatively flat in trading in the Far East, but dipped sharply to an intraday low of $922.30/oz. during NYMEX trading. Prices recovered, however, shortly thereafter and gold finished the day at $930.10/oz., up $1.70. Overnight, gold fell sharply.

Platinum was relatively unchanged in Far East trading, but slid during the NYMEX session. A huge late-morning rally salvaged the day, however, as the metal ended at $1,755/oz., up $15. Overnight, platinum dropped.

Silver tracked gold prices all day, rising slightly before dipping in New York trading. The metal moved into the black for good late in the NYMEX and closed up $0.15, at $17.49/oz. Overnight, silver declined.

Gold's minimal gain was spurred by rising oil prices and a slumping dollar. Gold tracked oil prices closely throughout the day.

According to Frank McGhee of International Brokerage Services, "The news in Nigeria is boosting oil, and the weaker dollar, is adding some support for gold,"

The more significant movement on the day, however, belonged to platinum, which also benefited from the dollar's weakness. This encouraged traders to move into platinum as an alternative investment.

There is skepticism, however, that platinum can maintain its upward momentum after the metal lost 14% on the month on speculation that a global economic slowdown will cut demand for platinum's industrial applications. Two-thirds of platinum worldwide is used in automobile emission control systems.

Jon Nadler of Kitco wrote that "news that Toyota has lowered its global sales forecast could keep platinum under cautious trading conditions."

Currencies and Economic News

In currency news, the dollar fell against the euro for the second consecutive day. The euro was buying $1.5738 late Monday vs. $1.5715 on Friday.

The dollar's weakness came despite an announcement by Secretary of the Treasury Henry Paulson. Appearing with representatives from the four largest banks in the U.S., Paulson proclaimed the start of a U.S. market for covered bonds. Greg Robb of Marketwatch.com writes that "under this system, mortgage originators sell mortgages to financial institutions who repackage them as securities and then re-sell them."

Currency investors, "yawned at U.S. Treasury Secretary Paulson's latest move to create a new market for mortgage financing," wrote Matthew Strauss of RBC Capital Markets.

He continued that while they may help over the long-run, "covered bonds are not expected to provide any short-term relieve to banks whose balance sheets are already under severe stress."

In other financial news, the White House reported Monday that the federal government is on track to post its highest budget deficit in history, $482 billion, during the next year. This certainly is of no help to the already reeling dollar.

Energy

In energy news, oil prices rose slightly Monday as international tensions outweighed concerns of lower U.S. demand. Crude for September delivery closed at $124.73 a barrel, up $1.47, while August-reformulated gasoline rose almost 4 cents to $3.07 a gallon.

The driving force behind oil's gains were rising tensions with Iran and militant attacks on oil pipelines in Nigeria. Iranian President Ahmoud Amadinejad said Saturday that Iran possesses 6,000 centrifuges, double most estimates. While he struck a more conciliatory tone late Monday, taking some air out of oil's rally, worries about Iranian nuclear ambitions are not likely to go away anytime soon.

Meanwhile, Nigeria's largest militant group, the Movement for the Emancipation of the Niger Delta (MEND) attacked two oil pipelines owned by Shell. Shell announced that they had to shut down some production to prevent a spill.

According to Nimit Khamar of Sucden Research, "these events just ... remind the market participants that geopolitical risks still remain and have a potential to disrupt oil supply."

Despite these signs, normally harbingers of a large rise in oil prices, continued news of low U.S. demand allowed for only a small upward movement. Consumption data released by the U.S. Energy Information Administration revealed that total crude and petroleum products supplied in May was at 19.729 million barrels, down 891,000 barrels from last year.

Phil Flynn of Alaron Trading wrote, "You're seeing demand destruction in motion...People are changing their habits. They've been burned and they can no longer afford these high prices."

Base Metals

It was a banner day today for the base metals as copper, zinc, nickel, aluminum, and lead all rose. Copper rose slightly in early trading before falling to an intraday low at around 9am. Prices rallied, however, to finish at $3.7692/lb., up 3/4 cents. Zinc also traded up in the pre-dawn hours before falling to under $0.81/lb. A late rally salvaged the day as the metal surged up 3 1/2 cents, 4.3%, to $0.8584/lb. Nickel tracked the movements of copper and zinc, riding a late rally to close at $8.3983/lb., up 14 3/4 cents. Aluminum rose steadily throughout the day, finishing up almost 2 cents, at $1.3453/lb. Lead also had a great day, breaking through $1 barrier once again to end at $1.0183/lb., up 4 1/2 cents.

The main impetus for the rise in the base metals was the combination of dollar's weakness coupled with rising oil prices. These factors served to make the base metals, and commodities in general, an attractive hedge against inflation for investors.

Lead's gain, its largest in two weeks, was fueled by news that China, the biggest producer and consumer of the metal, will increase imports.

According to Jim Lennon and Adam Rowley of Macquarie Group Ltd., "domestic lead demand [in China] has remained strong in 2008." They continued that "a large increase in LME-canceled warrants in Singapore was reportedly due to market participants looking to move metal from the LME to China, selling the material for a profit."

Despite the overwhelmingly good news on the day, there was some cause for concern for copper. A report by the U.S. Commodity Futures Trading Commission showed that hedge funds and large speculators cut net-long positions on the metal by 67%, only a week removed from a 54% decline.

"The funds are pulling out of copper and the other metals because of this picture of slowing demand and growth," remarked Ron Goodis of Equidex Brokerage Group.

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

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