Good morning ...
Gold's peak for the day came at the open of the New York session on Tuesday, at $880, and it plummeted from there nearly $20 during the first two hours of trading, before pushing back to finish at $866.10, down $16.10. Overnight, gold has retreated further in the overseas markets.
Platinum was also off sharply to mid-morning, but its rally back was snuffed out in the afternoon hours as it ended near its intraday low at $2050/oz., down $55. Overnight, platinum has fallen sharply.
Silver followed gold's lead exactly, with a precipitous drop of 70 cents by mid-morning, a rally to the noon hour, then more easing in the afternoon, to a close at $16.68, down 45 cents. Overnight, silver has been flat.
Not much positive to say about the precious metals' performance yesterday, as gold, silver and platinum all got taken out behind the woodshed.
Gold, which has recently been following the price of crude, shifted focus and homed in on the rising dollar.
Pessimists abound right about now. We should be higher in gold, considering that energy is so high, said Nick Ruggiero, a trader at Eagle Futures in New York. Since we're not, we can really see how gold has lost its momentum.
With gold having difficulty sustaining the recent rally, it succumbed to further profit taking when the dollar continued its recent rally (against the euro), wrote Mark O'Byrne, of Gold and Silver Investments Ltd.
This, despite the litany of bad financial news today and in recent days, may indicate that there may be a need for further consolidation prior to re-challenging the psychological $900 barrier in the near future, he added.
But, ever optimistic, O'Byrne concluded that with oil prices remaining well bid near record levels in the $120s and inflation pressures growing, it is hard to see how gold will remain below $900 for too long.
O'Byrne also pointed out that South African gold production fell again in March, down a significant 10.9% year over year.
Furthermore, he said, recent news regarding the massive power issues facing South African and the mining industry there is not encouraging. Eskom, the largest producer of electricity in Africa, reported Monday that the target of 10% power savings has not been met, and thus the mining industry looks set to be further hampered by power issues in the coming weeks and months, said O'Byrne.
Currencies and Economic News
In the currency market, the dollar firmed against the euro. Late Tuesday, the euro was trading at $1.5482 vs. $1.5541 on Monday.
The latest bad economic news was good because, as has become the norm, it was less bad than predicted. The Commerce Department reported retail sales fell 0.2% in April, after a 0.2% gain in March. Better than the 0.3% drop economists projected. Over the past year, sales were up 2%, matching the slowest growth in five years.
But wait. The U.S. dollar skyrocketed on the report because excluding autos, sales actually increased, noted Kathy Lien, of DailyFx.com.
Meanwhile Fed members were out on the rubber chicken circuit. Dallas Federal Reserve President Richard Fisher told an audience in Midland, Texas that he had absolute confidence over time...the dollar will be strong again.
And San Francisco Fed President Janet Yellen said that, My forecast is the most likely outcome over the next couple of years is that total and core inflation will moderate from present levels.
At the same time, though, Gentle Ben Bernanke warned that the financial sector remains severely stressed. Bernanke said that the Fed's cash infusions, while having met with some success, have not achieved their goal of stability, and that financial markets are still far from normal.
In the energy market Tuesday, crude for June delivery resumed its rise after a one-day breather, closing at $125.80/barrel, up $1.57. June reformulated gasoline gained 4 cents, to $3.20/gallon.
The price at the pump continues up as well, with a gallon of regular gasoline in the U.S. climbing on average to a fresh alltime record of $3.732, according to AAA's Daily Fuel Gauge Report. That's up over 10% from a month ago.
In one bull's view: We are engaged in a painful experiment to see how high oil prices have to go to curb demand enough to make a difference to global balances, wrote Adam Sieminski, chief energy economist at Deutsche Bank. There is not much reason for oil prices to go down until oil users slow their consumption.
Traders await today's inventory figures from the Energy Information Administration.
The base metals were mostly higher on Tuesday. Copper pushed higher in the pre-dawn hours, but then dropped in New York, rallying slightly at the end to finish at $3.7897/lb., down a bit less than a penny. Nickel rose slowly but steadily until mid-morning then went flat, closing at $12.1899/lb., up 15 3/4 cents. Zinc broke past $1 in the pre-dawn hours and continued higher, leveling off around noon at $1.0378/lb., up more than 6 cents. Aluminum had some sharp ups and downs to little ultimate effect as it gained less than a tenth of a cent, to $1.31/lb., while lead continued its comeback for a second straight day, adding 2 3/4 cents, to $1.0399/lb.
Copper traders continued to schiz out, vacillating between concerns over the stronger dollar on the one hand, and potential supply disruptions on the other.
Even though a nationwide miners' strike in Peru was postponed for 15 days in order to allow for further negotiations, the market is still casting a wary eye on developments in that key metal producer.
[Peru] is the world's largest silver producer, and produces significant amounts of zinc and copper, consequently strike action could lead to higher prices for these metals, said Fairfax analyst John Meyer.
To the south, in Chile, fears that recent strikes at Codelco plants could be resumed have been stoked after the Supreme Court ruled the state mining giant does not have to offer thousands of subcontractors full-time positions.
Subcontractors had agreed to end their 3-week strike on May 5 after a pledge from Codelco to make many of them full-time, and to pay a bonus.
Union leaders have already begun a hunger strike, saying that Codelco still has not acted upon the pledges it made last week.
Meanwhile, zinc's gain yesterday was the steepest in 2 1/2 months, as speculators placed bets that that the earthquake in China, the world's largest producer of the metal, might put some curbs on production. As much as 11% of the nation's smelting capacity, or some 500,000 tons, was probably affected by the quake, Reuters reported.
Disruption in China came on the heels of a strike at Skorpion's zinc mine in Namibia, Africa's largest. The strike at the Skorpion mine and uncertainty over zinc production in China's Sichuan province are now adding a new facet to what is becoming a very interesting story, wrote RBC Capital Markets analysts.
Still, Max Layton, an analyst at Macquarie Group in London, isn't pushing the panic button. Any impact from the earthquake would be very small, he said. The bank forecast a zinc surplus of 88,000 metric tons this year, rising to 202,000 tons in 2009 as new mines come on line.
That's what's happening ... see you tomorrow!
NEWS YOU CAN USE
First Majestic Silver Corp is committed to building a senior Silver producing mining company based on an aggressive acquisition and development plan with a focus on Mexico.
The Company presently owns or operates three silver mines in Mexico: The La Parrilla Silver Mine; The San Martin Silver Mine and the La Encantada Silver Mine. Annual production from these three mines is anticipated to be 5 million ounces in 2007.
The Daily Resource has been brought to you by our friend's at Casey Research.
For a great overview of the commodity sector we offer the 'Casey's Daily Resource Plus'.