Good morning ...

Precious Metals

Gold pushed above the low of $880 it hit at the open of London trading, but turned in a very lackluster day thereafter, moving only as high as $895 during the New York session and sinking to finish at $885.00, down $1.60. For the week, gold dipped 2.75%.

Platinum fell as low as $1910 in Europe, but regained most of the lost ground, ending at $1957/oz., down $6. For the week, platinum sagged 4.7%.

Silver's low was $16.40 as London opened, and it did better than its sister metals, pushing back into positive territory to close at $16.84, up 10 cents. For the week, silver was down a painful 5.4%.

Consolidation, and the licking of wounds, was the order of the day for the precious metals, as the selling that had characterized the previous several sessions abated, at least for the moment.

The usual suspects that drive prices were mixed yesterday, with oil resuming its rise but the dollar notching more gains against the yen and euro.

Noting silver's strong day relative to the other metals, the Hightower Report wrote: The silver market ... outperformed the gold and platinum markets for most of the session Friday. Certainly sharply higher energy prices provided the bull camp with some fodder but seeing copper prices firming would seem to suggest that both markets were attempting to discount the ongoing strength of the US Dollar. With equity and energy prices both moderately higher at times, some traders might have been prompted to buy into silver off the perfect storm mentality, which in the past has fomented talk of a return to classic inflation.

As for gold, an offbeat opinion was offered by Mark Hulbert, writing on MarketWatch. Hulbert notes that there has been a big shift in sentiment among gold newsletter writers over the past two weeks.

Back then, Hulbert writes, the editor of the average gold timing newsletter was short the market, which from a contrarian point of view was a good omen. Gold bullion did jump nearly $30 per ounce over the next week or so, but in the last few days it has plunged.

That would be disturbing enough to contrarian analysts. But there's more: The editor of the average gold timer is now markedly more bullish than he was two weeks ago, despite gold's weakness. This suggests that the prevailing mood among gold timers has shifted away from skepticism that the bull market is alive and well, and towards one of belief.

And that, Hulbert concludes, is not a good sign. When the average gold timer is ready to throw in the towel on gold's bull market, that's when contrarians would return to the bullish camp on gold.

Currencies and Economic News

In the currency market, the dollar moved higher against the euro for the third straight day. Late Friday, the euro was trading at $1.5625 vs. $1.5682 on Thursday.

The buck fought off a very downbeat University of Michigan/Reuters' consumer sentiment index report, which showed a decline to 62.6 in April, from an already-low 69.5 in March. The April number was the lowest in 26 years, and below even economists' pessimistic projections for a slide to 63.0.

The recent acceleration in the loss in confidence indicates a longer and potentially deeper recession, according to the survey's director, Richard Curtin. All households now anticipate smaller income gains and larger price increases, as just one-in-five now expect their overall finances to improve during the year ahead, the least favorable reading in more than a quarter century.

Among other indices, the expectations index fell to 53.3-the lowest level since November 1990-from 60.1 in March, and the current conditions index declined to 77.0-the low point since November 1982-from 84.2 in March.

The one-year outlook for inflation rose to 4.8% in April from 4.3% in March. This lofty April inflation reading captures the alarming degree of public awareness of soaring headline inflation just as the markets dwell on credit-market concerns, wrote Mike Englund, of Action Economics.

Additionally, even as President Bush on Friday reiterated his faith that the coming government economic-stimulus rebates will boost consumer spending, only 3 in 10 Americans say they plan to spend it, rather than save it or use it to pay down debt.


In the energy market Thursday, crude for June delivery spiked higher, regaining all of Thursday's losses and closing at $118.52/barrel, up $2.46. June reformulated gasoline added 3.51 cents, to $3.0537/gallon.

Potential supply problems dominated sentiment. First, a U.S. cargo ship fired warning shots at two unidentified boats in the Persian Gulf.

Then, in Nigeria: the rebel group MEND claimed responsibility for another oil pipeline bombing yesterday. That brings to four the number of pipelines the group has reportedly blown up in the past week. And separately, the strike by workers at Mobil Producing Nigeria Unlimited entered its second day Friday without further talks

Finally, BP said it could begin shutting down its 700,000 barrel a day Forties Pipeline System in the North Sea, if crucial utilities are cut off ahead of a refinery strike.

Base Metals

The base metals were all in positive territory on Friday. Copper fell as low as $3.85 in the pre-dawn hours but it moved steadily higher from there, peaking at $3.96 near noon before easing afterward to finish at $3.9412/lb., up more than 3 1/2 cents. Nickel followed a similar pattern, coming off its intraday high late to close at $13.2509/lb., up 24 2/3 cents. Zinc shot nearly straight up, ending at its intraday high of $1.0338/lb., up more than 3 1/2 cents. Aluminum had a very up and down day, winding up with a gain of just over a third of a cent, at $1.337/lb., while lead pushed higher by a penny, to $1.2391/lb.

Copper rallied as supplies of the metal declined. Inventories monitored by the LME were off 1,425 metric tons (1.3%) yesterday, to 110,775 tons, and haven't gained for a week. Meanwhile, inventories monitored by the Shanghai Futures Exchange were also down, by 6,765 metric tons last week, to 49,417 tons.

At the same time, union contract workers at state-owned Codelco's mines in Chile remain on strike and vowed to continue the walkout, and to disrupt operations, until they are rewarded with a bigger share of windfall revenues. Codelco is the world's largest copper producer, and troubles there ripple through the global markets.

The strike has paralyzed the Andina and Salvador divisions since April 16. The Teniente mine has also been closed, but was expected to re-open by today. Codelco Norte, the largest of the company's mines, hasn't been affected by the strike, a company spokesperson said.

Codelco is reportedly making offers in an attempt to end the strike, but The protests will continue ... with a great deal of mobilization, vowed Cristian Cuevas, president of the Confederation of Copper Workers.

In company news, Brazilian mining giant CVRD reported that first-quarter net profit fell 9% from a year ago, to $2.02 billion, as a drop in nickel prices and a strong local currency dragged down revenues.

EBIDTA, however, rose to $3.7 billion from $3.2 billion a year earlier. The net income was a little below analysts' projections, while EBIDTA came in a bit higher. Analysts are expecting much better second quarter earnings, which will benefit from a big price hike for iron ore agreed to by clients in February.

CVRD also said it sees the potential to double the 60,000 tons/year output expected from its Goro nickel project in New Caledonia. Commissioning of the Goro plant is expected to begin in June, and the operation will ramp up to full production over a three-year period, Vale says, but local opposition to the project continues to be fierce.

That's what's happening ... have a great weekend and see you Tuesday!


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