Good morning ...

Precious Metals

Except for a sharp dip that came just after New York opened and was quickly erased, gold stayed within a tight $7 range from the far East straight through to the end of trading, finishing near the high end at $856.70, up $4.30. For the week, gold shed 3.2%.

Platinum bottomed at $1840 then moved upward in two sharp steps on the Nymex, ending at its intraday high of $1900/oz., up $35. For the week, platinum was down 2.9%.

Silver pushed to a high point of $16.50 at the noon hour, but eased in the afternoon hours to close at $16.37, up 22 cents. For the week, silver lost 2.8%.

Though it was a day of rather modest gains, anything was better than the pounding the precious metals absorbed on Thursday. That gold quickly recovered from a dip under $850, and that silver held comfortably over $16 for the whole day, is certainly, while not confirmatory that the metals have bottomed, encouraging that that might be the case.

In addition, gold moved against a rising dollar, although it was supported by sharply higher crude prices.

The Hightower Report wrote of the ongoing tension in the market thusly: While it might take a little longer to transition the bull camp in the gold market back to a classic inflation posture, from the recent flight to quality argument, it is difficult to suggest that a recovery in the US economy will be a long term bearish development for the gold market. Certainly a host of buyers over the last year have banked on a persistent decline in the Dollar and in turn piled into gold. Certainly seeing fears of a historic financial debacle in the US added to the bull camp and therefore seeing the threat of a debacle in the US decline is naturally cause for a wave of long liquidation in gold. However, as was seen in the early action Friday morning, gold can rise in the face of residual Dollar strength and gold can also re-embrace the ongoing potentially historic inflationary threat that could unfold in the event that the US economy gets back on track. In short, the gold market appears to be facing a tug of war between an exodus of flight to quality longs and a possible influx of fresh buyers off a rekindling of classical inflation prospects.

James Moore, of remains cautious, writing that, We still see gold remaining under pressure in the short term, with a substantial break below $850 potentially triggering a move back to technical support located around $836.75.

Ned Schmidt, editor of the Value View Gold Report wrote that there's little doubt that recession is now the situation in both the U.S. and Canada, and consequently That reality has broken the short-term euphoria that had been chasing returns in real assets, from oil to gold to agri-food commodities ... With a recession mentality now in place, commodities are being sold ...

Currencies and Economic News

In the currency market, the dollar continued to move higher against the euro. Late Friday, the euro was trading at $1.5424 vs. $1.5457 on Thursday.

The buck put in a nice gain vs. the euro on the week, as traders balanced the dollar-negative effects of the Fed's latest rate cut against the belief that the Committee probably indicated the end of rate reductions by saying that substantial easing since September will help foster growth.

Dollar bulls, hard to find in recent times, are suddenly coming out of the woodwork, as if 2% interest rates are the panacea for all currency problems. It's pretty likely we've seen the lows in the dollar, said Robert Sinche, of the Bank of America. You've got a market that has been buying dollars, and certainly it got a nice reinforcement.

In the day's data, there was another instance of better-than-expected bad news is really good news. Nonfarm payrolls fell by 20,000 in April, the Labor Department said. Though not a healthy number, is was less than the average 80,000 jobs lost per month in the first quarter of the year, and well below job losses of 78,000 projected by economists.

And few bothered to comment that without the Bureau of Labor Statistics' net birth/death adjustment, the job loss would have been ghastly. That adjustment, which-surprise!-always seems to add jobs rather than subtract them, pushed the total up by 267,000.


In the energy market Friday, crude for June delivery shot higher after three straight days of declines, rising to $116.32/barrel, up $3.80. June reformulated gasoline gained 8.82 cents, to $2.9664/gallon.

Oil was spurred higher by rising tensions in the Middle East, in the form of raids launched by the Turkish air force against Kurdish positions inside Iraq.

Analysts remain confused, even the same analyst.

On the one hand, It just doesn't look like this market is getting ready to turn around and go down for a long term, said Darin Newsom, of commodities information provider DTN. The news in Iraq helps confirm there are still problems on the supply side.

But on the other, If the rally in the U.S. dollar index gains momentum and money begins to come out of crude oil, the bearish technical signal established this week could lead to a larger selloff , Newsom said.

Base Metals

The base metals were mostly higher on Friday. Copper was down in the pre-dawn hours, but took off once New York trading began and pushed steadily higher, only retreating a little after noon to finish at $3.8731/lb., up 8 2/3 cents. Nickel also rallied off its pre-dawn lows, but it wasn't enough to get it back into the black as it closed at $12.724/lb., down 4 1/2 cents. Zinc inched higher, ending at $0.9824/lb., up three-quarters of a cent. Aluminum had a strong day, adding 2 2/3 cents to $1.2998/lb., while lead logged a modest gain to $1.1595/lb., up a penny and a quarter.

After the bloodletting on Thursday, most traders were clearly in a bargain-hunting mood yesterday.

In the likes of copper where the fundamentals are tight and, if anything, tightening, this sell-off may well be snapped up as a buying opportunity, said analyst William Adams.

This is especially so when you consider that the equity and dollar rally is unfolding on the back of high hopes that the interest rate cuts and other measures the U.S. Federal Reserve has taken will bolster the U.S. economy, which in turn should be good for metal demand, Adams added.

Also factoring in were supply worries. Inventories monitored by the LME dropped by 450 metric tons yesterday, to 109,625 tons.

Bill O'Neill, of LOGIC Advisors in Upper Saddle River, New Jersey, remains bullish, saying that, The market has a very solid underlying base as far as low free stocks are concerned. We have the Codelco strike situation continuing, so I think there is some pretty good underlying fundamentals within the market ... Long term, this copper bull market is still in play.

The Codelco situation remained unchanged yesterday, with the Andino and Salvador mines staying shut, and no end to the strike in sight.

And a Macquarie Bank report said Chinese copper demand for the first quarter was up by only 1% year-on-year, as consumers re-built stocks. However, Aluminum was up by 9.5% year-on-year, affected by supply disruptions following weather/power problems and lower exports of aluminium fabricated products, the report noted.

Most analysts believe that the industrial metals will be driven in the near future by the dollar, as traders try to divine whether a real rally is underway, or whether the buck is merely making a dead cat bounce. Monday will have little to tell, as the LME is closed for holiday.

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


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