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Good Morning...

Precious Metals

It was a terrible day for the precious metals as gold, silver, and platinum all tumbled. Gold started up slightly in Far East trading, but began a steady fall at the opening of the London market. While prices eventually leveled off midway through the NYMEX, the damage was done and gold closed down $12.50, at $917.60/oz. Overnight, gold has fallen further.

Platinum also started the day in the black, but slid during trading in Zurich to an intraday low below $1720/oz. While the metal staged a slight rally in late trading, platinum still ended the day as $1739/oz., down $16. Overnight, platinum is down slightly.

Like the other precious metals, silver rose slightly in incrementally in the Far East, but dropped precipitously in the London session. It flirted with breaking the $17 barrier, reaching an intraday low of $17.06/oz., but recovered some of its losses to finish down $0.18, at $17.31/oz. Overnight, silver has also slipped.

The losses incurred by the precious metals can be blamed on the usual suspects: sharply falling crude prices, large gains for the dollar, and rising equities. The confluence of these factors served to decrease the appeal of gold and other commodities as a hedge against inflation.

"There's weakness in gold and precious metals due to a stronger dollar and weaker crude oil,'' remarked Matthew Zeman of LaSalle Futures Group. "Gold has been following the inflation outlook."

Despite the bleak outlook on the day, it should be noted that gold is still riding slightly above the 50 day moving average.

Zeman concluded that "gold has been hugging that support level, so we could start to see a nice bounce here."

Currencies and Economic News

In currency news, the dollar posted strong gains against the euro, reversing two days of losses and nearing a one-month high. The euro was trading at $1.5587 lat Tuesday vs. $1.5738 on Monday.

The dollar's rise was influenced by a number of factors. Crude prices fell, while the equities market rebounded strongly Tuesday after getting pummeled during the previous day's trading. All three major stock indices gained over 2% on the day.

The dollar was given further life when the Conference Board's report on U.S. consumer confidence showed that consumer confidence in July had risen to a reading of 51.9, a higher than anticiptaed number. Economists expected the figure to be 50.0. June numbers were also readjusted up .6 points to 51.0.

According to Michael Woolfolk of Bank of New York Mellon, "the rebound in the U.S. dollar over the past week from recent record lows has been driven by the same factors that bolstered the greenback today -- a fall in crude-oil prices, a rally in the stock market and improvement in market sentiment."

However, the dollar's gains were not simply based on the newfound perceived strength of the U.S. economy, but also poor economic news from the euro-zone.

French consumer confidence numbers dropped to their lowest levels since the survey originated in 1987, while the Bank of England reported that mortgage approvals had dropped by 5,000 to 36,000 from May to June.

"Sentiment is turning more bearish" on the euro wrote Kevin Edgeley of Goldman Sachs.

Energy

In energy news, oil traded lower for the day, continuing a string of recent declines since hitting an all-time high over $147 a barrel several weeks ago. Crude for September delivery fell another $2.54 to finish at $122.19 a barrel, its lowest price in 12 weeks. September reformulated gasoline also fell 6.1 cents, ending the day at $3.0132 a gallon.

The main culprits in oil's decline were a rising dollar and weaker U.S. demand, the inevitable result of high oil prices.

"A stronger dollar translates into weaker crude,'' stated Tom Bentz of BNP Paribas. "The market is still kind of in this downward trend here in the short term and is having troubling turning back up."

The bigger effect, however, seems to be that of weak demand for oil in the U.S. New information on worsening demand seems to be arriving daily. Today, the source was Mastercard Inc., which reported Tuesday that consumption of gasoline has dropped for 14 straight weeks under pressure from high prices.

According to John Kilduff of MF Global, this is merely the logical extension of the laws of supply and demand.

He remarked that "whether prices drop to $80 ... or not, there can only be the unavoidable conclusion that markets are finally working as they are supposed to, as higher prices inevitably act as a brake on demand."

Base Metals

It was a decidedly poor day for the base metals Tuesday as copper, zinc, nickel, aluminum, and lead all fell, reversing yesterday's solid gains. Copper was flat in early trading, but ran into a determined sell-off in the pre-dawn hours. While the metal managed a slight recovery, it still finished the day down almost 4 cents, at $3.6894/lb. Zinc dropped steadily throughout the morning, stabilizing around noon to close at $0.8335/lb. down 2 1/2 cents. Nickel followed a similar trading pattern to copper, rising in the early morning before sliding for the rest of the day. The metal ended down over 2 1/2 cents on the day, at $8.1337/lb. Aluminum also fell steadily throughout trading on Tuesday, closing at $1.3227, down 2 1/4 cents. Lead, while the least affected by the day's losses, still finished down 1/4 cent, at $1.0160/lb.

Copper's losses were fueled by a variety of economic indicators that all pointed to a slowing economy, leading many to believe that demand for copper will reduce demand for the metal, which is commonly used in the pipes and wires of new houses.

A retail sales index in the U.K. reported its lowest number in 25 years, while unemployment levels in Japan rose to their highest numbers in 2 years. Meanwhile, a report Monday from the IMF stated that there is no immediately foreseeable end to the housing crisis in the U.S.

"There is a poor outlook for demand, especially with the continued bearish outlook for housing,'' remarked Michael Gross of OptionsSellers. "Prices could continue to fall."

Matthew Zeman of LaSalle Futures Group agreed, stating that "I don't think it will be possible to fuel any sustainable rally based on the current fundamentals."

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

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