Good morning …

Precious Metals

Gold turned in a day of opposites on Monday after trading flat until just after Hong Kong closed, when it pushed sharply higher through the first hour of the New York session, peaking at $915, but then abruptly turned around and fell steadily through the rest of the Comex and the Globex, finishing at its intraday low of $895.90/oz., down $7.30. Overnight, gold is sharply higher.

Platinum fared better, rising from late Hong Kong trading into the New York session, then holding its gains in sideways action, ending at $1127, up $9. Overnight, platinum is little changed.

Silver followed much the same path as gold, peaking at the same time, at $13.57, but its decline was much less pronounced and it held its gains well enough to close at $13.32/oz., up 29 cents. Overnight, silver is trending higher.

The precious metals turned in a split decision yesterday, with silver holding well above the $13 mark and platinum above $1100, but gold sagging below $900, which it has been struggling to redefine as a support level, without much success.

There was not much buoyancy to be found among the usual suspects as equities zigzagged, oil slid and the dollar firmed up.

The Hightower Report noted silver’s success thusly: “Silver initially traded sharply higher as the market seemed to find both chart based buying support and demand interest inspired from a better macroeconomic outlook. Seeing improvements in US manufacturing, housing and consumer sentiment has improved traders sentiment in the silver market which lifted July silver to the highest price level in over a month. With Bernanke also seeing economic conditions improving, the prospects for a pick up in industrial metals demand seemed to provide silver with stronger price support than gold. In fact, the silver market was able to hold onto a good portion of the day's gains despite the recovery in the Dollar and a sharp break in copper and that may suggest the fundamentals supporting the silver market could be a bit stronger than gold's.”

Was gold’s recent rally unsustainable?

In the opinion of technician James Moore, of TheBullionDesk.com, “gold is still struggling to conquer trend-line resistance, and, with momentum indicators showing signs of stalling, the metal remains at risk of testing back to the $865 area.”

Also helping to dampen gold’s performance yesterday were words from Fed Chairman Ben Bernanke, who proclaimed that the U.S. economy is bottoming out and will turn up later this year. Inflation will remain low, Bernanke testified to Congress, and if true, that would be gold negative.

Currencies and Economic News

In the currency market, the dollar rallied against the euro. Late Tuesday, the euro was trading at $1.3319 vs. $1.3365 on Monday.

“Optimistic comments from Federal Reserve Chairman Ben Bernanke and a slower pace of contraction in the service sector have helped to drive the U.S. dollar higher,” said Kathy Lien, director of currency research at Global Forex Trading.

The Institute of Supply Management reported yesterday that its non-manufacturing (services industry) index improved to 43.7% from 40.8% in March. While readings below 50% still indicate contraction, it was the index’s first increase since January.

The gain beat the expectations of economists, who had been projecting the index to rise only to 42%.

“This report is an encouraging sign that the intensity of the recession is diminishing,” wrote John Ryding and Conrad DeQuadros of RDQ Economics.

And Big Ben chipped in with: “The recent data ... suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing.”

But a lot of nervousness remains over the release of the bank stress test results, expected tomorrow, which is “an event risk and may be constraining US dollar gains,” said Marc Chandler of Brown Brothers Harriman.

Energy

In the energy market on Tuesday, crude for June delivery fell for the first session in five, closing at $53.84/barrel, down 63 cents. June reformulated gasoline dropped 1.38 cents, to $1.5722/gallon.

Analysts cited concerns that the Energy Information Administration’s inventory report, due today, will show stocks that have risen past their 19-year high, set last week. Analysts surveyed by Platts expect a buildup of 2.2 million barrels.

“While economic indicators are continuing to look less bad, oil fundamentals are still looking far from rosy,” wrote Nimit Khamar, of Sucden Financial Research. “The fact remains there is still a large amount of crude inventories around and oil demand is continuing to fall.”

Zachary Oxman, managing director at TrendMax Futures, offered a concurring opinion, saying that, “In the near term, we are very overbought in both oil and stocks and I'd expect a descent pull-back this month as the big money steps aside and looks to liquidate some long side profits.”

Also weighing on crude were early rumors about the bank stress tests, which will reportedly direct about 10 of the 19 banks examined to boost capital.

Base Metals

After an off day on Monday, with the LME closed for holiday, the base metals were mixed on Tuesday. Copper pushed as high as $2.15 early in the pre-dawn hours, but that was it as it sank pretty much straight through the day from there, just coming off its intraday lows to finish at $2.0468/lb., down nearly 4 cents from Friday. Nickel peaked above $5.50 before it too declined, but it managed to eke out a gain late, closing at $5.3206/lb., up just over a penny. Zinc traded mostly sideways, ending at $0.6744/lb., up less than a half-cent. Aluminum also wound up at $0.6744/lb., down less than a quarter-cent, while lead posted a modest gain to $0.6362/lb., up just under a penny.

Copper backed off its gains, falling from a 2-week high as declining equities and a strengthening dollar were the main drivers of the day, along with perhaps a bit of profit taking after several days of higher prices. The metal had moved up12% in the previous four sessions on speculation that manufacturing will rebound.

As one trader commented, “We've moved up for the last couple of days and I'd say it's probably profit taking. But I don't think the selling was based on anything too noteworthy.”

Volume was light, and with London closed on Monday, some traders see a market mood where holiday mode persists for a few more days.

In any event, the supply situation continues to be supportive. Copper inventories monitored by the LME dropped again yesterday, falling by 3,775 metric tons, to 394,925 tons.

But, “Prices have reached a top,” wrote Eliane Tanner, an analyst at Credit Suisse Group in Zurich. She predicted a drop “in the weeks ahead.”

Citigroup analysts agreed, writing that, “Copper has run way ahead of its fundamentals.”

In company news, Xstrata reported that copper output in the first quarter of 2009 fell 1.3% percent from the same period a year earlier, to 217,092 metric tons, while production of coal, nickel, platinum and zinc in concentrate all rose.

That’s what’s happening … see you tomorrow!


NEWS YOU CAN USE:

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