Good morning …

Precious Metals

Gold was rangebound all the way from the far East through the Globex on Wednesday, varying between $920 and $930, before finally finishing at $926.10/oz., up $3.80. Overnight, gold has slipped lower.

Platinum hit a very slow but steady decline that lasted all day, winding up near its low point at $1112, down $19. Overnight, platinum has fallen off.

Silver peaked in Hong Kong, then fell to mid-morning in New York, bottoming at $13.90 then bounced back to $14.15 near the noon hour, but eased from there, closing at $13.96, down 26 cents. Overnight, silver is sharply lower.

It was a very mixed day for the precious metals yesterday, with both platinum and silver sharply lower, but gold holding its own and ending in positive territory. With the usual suspects offering no support at all—oil prices slid, while the dollar strengthened—gold bugs were probably pleased that the metal held up as well as it did.

Dan Norcini, writing on jsmineset.com, wrote of the day’s action: “Gold was holding very well early in the session as it made a charge all the way to near $930, the last level of resistance standing in its path, before the mining shares proceeded to fall out of bed and took the wind out of its sails. It looked as if Gold was getting ready to begin a bona fide trending move higher but once the HUI and the XAU began dropping alongside of the broader equity markets, in came the selling crowd at the Comex.

“It is not much of an analysis but the simple fact is that the Dollar is still the key mover and shaker when it comes to the entire commodity complex and that as risk aversion increases or decreases, its movements are going to influence fund buying and selling. If I knew exactly what the investment crowd was going to be thinking on any given day, I would know what to expect for the Dollar, but alas, we are all just mere mortals.

“Gold is trading above all of its major moving averages so it is continuing to slowly grind higher but the sharp move lower in the mining shares is a concern. What gold does not need is another blast of deflationary winds. Let’s see how things settle at the close of equity trading today and where the Dollar settles.”

What of the disparity between gold’s performance this year, and that of its sister metals?

“One could argue that the putative ‘green shoots’ being seen all over the economy have also given rise to ‘shiny shoots’ among industrial metals,” said Kitco’s Jon Nadler. “Due to the same rising optimism about the impending economic recovery, gold started to exhibit a loss of the fear premium which had driven it back to the $1,000 level earlier this year.”

And James Steel, of HSBC Securities in New York, says that platinum, palladium and silver are catching up with gold because of the outlook for reduced supply. He notes that platinum producers have halted expansion plans and eliminated jobs, while silver output may be affected by cutbacks at non- ferrous metals mines.

Currencies and Economic News

In the currency market, the dollar rose against the euro. Late Wednesday, the euro was trading at $1.3597 vs. $1.3644 on Tuesday.

Analysts saw the buck benefiting from a flow back into the pre-eminent currency safe haven.

The day’s most significant hard number came from the Commerce Department, which reported that retail sales pulled back again in April, dropping a seasonally adjusted 0.4%, the eighth decline in the past 10 months and 9.4% lower year-over-year.

That surprised economists, who were forecasting a small rise in sales. “The dollar gained across the board in North American trading after weaker than expected U.S. retail sales called the 'green shoots' thesis into question,” wrote strategists at Brown Brothers Harriman. “This tug of war is likely to continue for much of the second and third quarter, they said.

“There is no momentum in spending,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. “The freefall is over but shredded balance sheets and declining incomes mean a broadly flat trend is about the best we can expect.”

Separately, the Labor Department said prices of imports rose 1.6% in April, but are still down a record 16.3% in the past year, largely because of the decline of crude.

Energy

In the energy market on Wednesday, crude for June delivery slid lower, closing at $58.02/barrel, down 83 cents. June reformulated gasoline rose 2.09 cents, to $1.6888/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks fell by 4.7 million barrels in the week ended May 8, surprising analysts who had expected a gain of more than 1 million barrels. The drop was largely due to weak imports, which averaged 8.7 million barrels per day, down 1.2 million barrels per day from the previous week

Gasoline supplies were down by 4.1 million barrels last week, again vs. expectations for a modest gain, and distillates increased by 1 million barrels. Refineries were operating at 80.4% of capacity, a sharp drop from 85.3% a week earlier. That’s the lowest level since last September.

The EIA said that demand remains weak. Total petroleum demand over the past four weeks averaged 18.2 million barrels a day, down by 7.9% from a year ago.

In other words, “the fundamentals are still bearish with lower consumption levels,” said James Williams, of WTRG Economics.

Base Metals

The base metals were all mired in red on Wednesday. Copper was in the green until the late pre-dawn hours, but then declined through most of the day, to finish just off its intraday lows at $2.0099/lb., down 5 cents. Nickel followed copper closely, closing at its intraday low of $5.586/lb., down 25 2/3 cents. Zinc tumbled to its intraday low of $0.657/lb., down 2 3/4 cents. Aluminum was weak, shedding more than three-quarters of a cent, to $0.6687/lb., while lead rounded out the down day by giving up a penny and a half, to $0.6517/lb.

Copper led the industrial metals lower, as the disappointing retail sales report crushed feelings of optimism about the economy. The metal is now off 7.1% in the past five sessions on signs that a rebound in the global economy may not be as forthcoming as thought.

The sales figures “add to the list of reasons why the recovery won’t be as strong as people had been expecting,” said Michael Pento, the chief economist at Delta Global Advisors in Holmdel, New Jersey. “I wouldn’t be surprised to see copper consolidate and head a bit lower.”

Pento added that, “The most salient point for the copper price was when we started to see a depreciation in the dollar … A falling dollar will push commodities higher, not from a demand standpoint, but from the standpoint of inflation.”

Stewart Solaka, of LaSalle Futures Group in Chicago, advanced a technical point of view, saying that, “Broader weakness in the market was hitting copper. But copper also tested $2.20 (resistance) two times and failed to get above it. It pulled back to a trendline low and is practically touching it right now.”

Solaka said the S&P index and copper prices are critical, with both numbers hovering above their key lows. “These are very significant areas for both of them, that are either hold or break,” he maintains.

Stockpile data continued to be supportive, though. Copper inventories monitored by the LME fell by 5,275 metric tons yesterday, to 373,750 tons.

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


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