Good Morning,

Gold prices rebounded a bit and drew closer to the $930 area following yesterday's selling waves. In the early hours on Tuesday, traders were looking at marginally higher oil ($64.58 per barrel - still, almost $10 away from recent fund-driven rally values) and a leveling out and even a small slippage in the greenback (to around $80.10) before jumping into the market as it was setting up for the NY opening. The rebound was seen as capped by resistance up near and beyond the $940 area at the moment. Support was still expected to manifest itself under $920 and probably grow stronger, near $912, should the metal slip to such levels soon.

The opening came, and showed spot gold with a $4.5 per ounce gain, at $929.40 in New York. Participants are still on dollar-watch as investors await anything in the way of concrete words about it and the global economy, to emerge from the G-8 summit following tomorrow's start of same in Italy. Leaders are gathering under a cross-current of mixed and extremely fuzzy economic news. For example, UK factory production dropped unexpectedly for the first time in three months this morning, while German manufacturing orders spiked by 4.4% in May - the most in about two year. Go make investment sense and position yourself in markets based on news and statistics that change 180 degrees sometimes within a one-week timeframe. If you have money to burn, that is.

Silver advanced 9 cents to start at $13.34 while platinum added only a modest $1 to open at $1145 and palladium gained $4 to $244 this morning. GM found a way to eventually emerge from Chapter 11 but this development did not appear to faze the noble metals markets. It's (still) about the basic automotive demand, stupid. Over in India, where import duties were doubled on bullion as of yesterday, the World Gold Council envisions gold making its way into the country the 'old-fashioned' way; on little boats belonging to smugglers. Where there is a will (ingness to buy gold) there will be a way (found to fill such need). Just remains to be seen how much or how little gold will be demanded in the home stretch of the year if in fact four-digit gold price predictions prove to be valid.

Speaking of demand, well, there are two trends to be kept on the market radar's centre at this time. One is the demand for dollars, the other, the lack of demand for most other....stuff. Investment-flavoured, or not.

Further resilience was observed in the US dollar overnight, as continued safe-haven inflows buoyed the currency and helped it remain above the 80-mark on the trade-weighted index. Suddenly, global investors are less than certain that the recovery they believed to have spotted in early spring will have the stamina it was thought to have initially had. As a result, the greenback and the yen have been attracting attention from safe-haven seekers, while the effects on equities and commodities (for at least the past couple of weeks) have not been exactly what speculators had in mind.

Here is the big problem, as far as most of these markets are concerned. And, concerned they are, make no mistake. China - the darling of the ChIndia crowd (you know, the one that bets everything on these two countries' putative future demand for just about everything) is stumbling. Intense as its leadership's focus on reviving the economy may be, the country is having some difficulties easily climbing out of the credit crisis quicksand pit. As a result, both UBS and Deutsche Bank pounced on the ChIndia mythos that is so strongly entrenched among commodity bulls, and dumped collective buckets of cold water on their enthusiasm. Marketwatch reports that:

China could be an unexpected laggard to any global recovery, with its economy set to remain sluggish after a long run of bubble-like investment in factories and other fixed assets wears off, some analysts say.

The world's third-largest economy is likely to struggle with a W-shaped recovery, with another big down leg is coming, as growth in government-led fixed-asset investment eases to around 10% during the next 12 months, Deutsche Bank analysts said in a research note Monday.

Even a rebound in exports won't be enough to offset the decline in stimulus investment. Fixed-asset investment (FAI) is about three times more important than exports in contributing to gross domestic product growth, according to Deutsche Bank chief Greater China economist Jun Ma. China's FAI growth was 33% higher in the January-through-May period than in the same months of 2008. But Deutsche Bank says overall FAI will fall by 30 percentage points during the next 12 month, with relatively strong flows into real-estate helping cushion the decline.

We think government-led fixed asset investment growth will fall precipitously from 60% year-on-year in the coming one to two months to zero in mid-2010, showing an inverted V-shaped trajectory, Ma said, adding the pattern would be a repeat of what was seen in 1998-1999, following the Asian Financial Crisis.

He cautioned that the coming slump would be negative for sectors such as materials and construction equipment. Instead, Deutsche Bank favors equities in South Korea and Taiwan in coming quarters, economies which should see more direct benefits when global consumers begin to spend again. Other themes that should do well are consumer and technology companies across Asia. Ma thinks these sectors should be winners when the government, frustrated by its efforts to fuel growth through infrastructure spending, shifts its focus to supporting social welfare and consumer consumption.

In fact, stimulus spending by Beijing and regional provincial governments may have peaked in terms of supporting FAI growth. New infrastructure project approvals are down from highs in the fourth quarter of last year, and new project starts appear to have reached a zenith in the second quarter. Standard Chartered Bank also cautioned that China's FAI growth is likely being manipulated to the high side by local officials that have incentives to report good-looking numbers.

For now, however, Chinese industrial stocks appeared to benefit from general confidence in government-led investments there, extending their gains of recent months during Tuesday's session.

Little wonder then, that our good friend Claudia Carpenter, over at Bloomberg's London desk, sent us commodity analysis missives that read as follows, on this early July morning:

Copper imports into China, which increased to a record this year, may plunge 64 percent in the second half, UBS AG said. China, the world's largest consumer of the metal, may cut refined copper imports to around 100,000 metric tons a month in July to December, from an average of 280,000 tons in the first five months, UBS analysts led by Peter Hickson said in an e-mailed report dated July 6.

There are ''clear indications that China is now overstocked'' as the Strategic Reserve Bureau is offering up to 100,000 tons of copper to the market and traders are preparing for exports of the metal, the report said. UBS joined Macquarie Group Ltd. in forecasting declining Chinese purchases after record shipments lifted prices, closing the gap between London and Shanghai rates and making it unprofitable to import the metal into China.

Gold, little changed in Asia, may extend a decline to a two-week low as crude oil slipped and the dollar rallied. Bullion fell to $920.75 an ounce yesterday, the lowest since June 23, as oil led a drop in commodities on concern the global economic recovery will falter, damping demand for the precious metal as an inflation hedge. ''In the near term, gold will trade in a wide $880 to $980 range as concerns swing between inflation and deflation,'' Lin Haoxiang, analyst at Guotai Junan Securities, said from Shanghai today. ''Gold's day-to-day moves will still be broadly influenced by the U.S. dollar.''

And then, there is the US - still the world's largest economy, with its own recovery still in the 'uncertain' column as of this mid-year timeframe. Uncertain enough, for some to call for Stimulus Part Deux - More Adrenaline, Please to premiere at an economic screen near you, soon. The sooner, the better, it is said:

An economic adviser to President Barack Obama on Tuesday said the United States should plan for a possible second round of fiscal stimulus to boost the economy, news reports said. Speaking at a seminar in Singapore, Laura D'Andrea Tyson said the current $787 billion stimulus package will have a positive effect, but warned that the real economy is a sicker patient, Bloomberg reported. Tyson emphasized she was speaking for herself and not the administration, the report said. Tyson said the current stimulus is performing close to expectations but not in timing, Reuters reported, noting the slow pace of stimulus spending so far. - source: Marketwatch.

Speaking of money to burn, and a lot of it was burned on oil last year, how would you like to see the day when you had better shown proof that your gold position is in fact a 'bona-fide hedge' and not some flight of speculative fancy? Think it is far-fetched? Think again. TPTB are entertaining exactly such disclosure and scrutiny. Thank the hedgies and their push to distort markets beyond recognition, for the sake of that extra buck. Bloomberg informs that:

U.S. regulators say they may clamp down on oil and gas price speculators by limiting the holdings of energy futures traders, including index and exchange-traded funds. The Commodity Futures Trading Commission will hold hearings to explore the need for government-imposed restrictions on speculative trading in oil, gas and other energy markets, Chairman Gary Gensler said today in a statement. The agency didn't say when the hearings would start or who would be asked to testify.

Senator Bernie Sanders, a Vermont independent, and Representative Bart Stupak, a Michigan Democrat, have called for action to avoid a repeat of last year's run-up in crude oil prices to a record $147.21 a barrel, which they blame on speculators. Oil has climbed 44 percent this year in New York Mercantile Exchange trading, even amid a drop in demand and high levels of fuel in storage.

Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities, such as crude oil, heating oil, natural gas, gasoline and other energy products, Gensler said in the statement. This will include a careful review of the appropriateness of exemptions from these limits for various types of market participants.

Billionaire investor George Soros told a Senate hearing in June 2008 that the oil price increase that year was caused partly by index funds that buy only oil contracts. Index funds and exchange-traded funds, which mimic an index, can hold oil contracts in excess of available supply. Sanders has introduced legislation that would force the CFTC to invoke emergency authority to stop oil speculation. The agency is seeking input on whether it should impose aggregate position limits, Gensler said.

Gensler said in a letter to lawmakers earlier this year that speculators contributed to an asset bubble in commodities in 2008. His statement broke from former CFTC Acting Chairman Walter Lukken, who testified to Congress on Sept. 11 that there wasn't strong evidence index traders were driving up prices.

Gensler wouldn't say in an interview last week if he thought the same thing was happening this year. The CFTC currently sets and ensures adherence to position limits with respect to certain agriculture products, Gensler said in the statement. For energy commodities, futures exchanges set position limits and accountability levels to protect against manipulation and congestion. The exchanges are not required to set and enforce position limits to prevent the burdens of excessive speculation.

The chairman said the CFTC is reviewing exemptions from position limits for bona fide hedging, after seeking public comment on whether the exemption should continue to apply to traders who are in the market for financial reasons, rather than those that actually use the commodity. Gensler also said the agency was going to improve its weekly commitment of traders' reports by separating swaps dealers from hedge funds. The agency will continue to collect and report data from swaps dealers and index investors, extending a special call from last year, Gensler said.

Enhancing the quality of information in these weekly reports will better inform market participants and the public about the positions of the various types of traders, he said.

This concludes today's roundup of (almost) all of the news that was fit to print. We say, let the week run into its second half and let something (anything) leak out of L'Acquila, Italy in terms of posturing. We might know better (though not yet well enough) which way to move after the G-8 tete-a-tete. One hopes.

Happy Trading.