Good morning ...

Precious Metals

Gold was tightly rangebound from the overseas markets straight through the NYMEX and Globex sessions on Wednesday, bouncing between $860 and $870, and finishing at $864.40, down $1.30. Overnight, gold has edged higher in the overseas markets.

Platinum fell as low as $2000 in Hong Kong, but came smartly off that low even though it never made it back to break-even, ending at $2032/oz., down $18. Overnight, platinum has fallen off.

Silver pushed well into the black above $16.80 at the New York open, but then was sold off steadily for the rest of the day, closing at $16.49, down 19 cents. Overnight, silver has been pushing higher.

It was another grind-it-out day for the precious metals, as they struggled to keep their heads above water with both the firm dollar and declining oil moving against them.

The Hightower Report wrote of the day's tepid action: The gold market mostly favored the downside in the action on Wednesday which initially seemed to be the direct result of ongoing strength in the US Dollar. However, gold prices did manage to bounce by as much as $6 an ounce off their post report lows with the still mostly Dollar holding in positive ground. The currency trade continues to suggest that a close above the 74.00 level in the June Dollar Index is an extremely critical level and it appears that the gold market is also watching that level as well. In the end, the bull camp in gold might suggest that prices held up relatively well in the face of minor Dollar strength and moderate weakness in oil prices. In fact, a number of physical commodity markets were under pressure Wednesday and even that didn't seem to add to the initial weakness in gold prices.

At this point, fundamentals to the contrary, one would have to admit that the bears are pretty much in control.

There's no buying interest in gold at the moment, Matt Zeman, of LaSalle Futures Group in Chicago, stated flatly. And, The CPI coming in tamer than expected is not going to help, he added.

And, I would look for the buck to continue firming, said Ralph Preston, an analyst at Heritage West Futures in San Diego. A test of $850 appears to be in the cards for gold on the back of the inflation numbers.

But on a more upbeat note, Societe Generale said in a recent report that while chart analysis shows silver will be little changed to lower during most of May, the price will average $20.25 an ounce in the second quarter. That would be quite a rally.

Currencies and Economic News

In the currency market, the dollar firmed a bit more against the euro. Late Wednesday, the euro was trading at $1.5459 vs. $1.5482 on Tuesday.

Traders were digesting the latest Labor Department stats on inflation, believers in which also favor the tooth fairy. Still, many take them seriously, and for those who do Labor said that the CPI came in at a tame 0.2%, below expectations, for April.

Something - though nothing that declined a lot in price last month comes quickly to mind - apparently offset the stunning 0.9% jump in food prices, the largest seen since 1990. Prices of food consumed in the home jumped 1.5%, also the largest gain in 18 years.

After offering a nice bridge for sale, Joel Naroff, president of Naroff Economic Advisors, suggested: Watch out for the headline number in May as the full increase in gasoline will show up.

If the May CPI soars, the Fed could feel forced to act. But for now, yesterday's numbers report should mean reduced pressure on the Federal Reserve to quickly end its accommodative monetary policy.

Futures traders are pricing in an 8% chance the Fed will cut rates again, to 1.75%, in June. On the other hand, traders are giving even odds that the Fed will start raising rates by late October.


In the energy market Wednesday, crude for June backed off, falling under $125 to close at $124.22/barrel, down $1.58. June reformulated gasoline lost 2 cents, to $3.18/gallon.

The day's focal point was the weekly inventory report from the Energy Information Administration. Crude inventories rose 200,000 barrels for the week ended May 9, the EIA said.

Gasoline supplies fell more than expected last week, the EIA report showed, down 1.7 million barrels, while distillate inventories, which include heating oil and jet fuel, climbed 1.4 million barrels. But the refinery utilization rate stood at 86.6% of capacity last week, up from 85.0% a week earlier.

Although the DOE numbers were slightly disappointing to traders' estimates, we still had a build in crude supplies and perhaps more importantly, saw a large increase in refinery utilization rates, said Thomas Hartmann, of Altavest Worldwide Trading.

We've seen the crack spread widen materially in the last two weeks, which should encourage more gasoline production over the coming weeks as refiners see better profit margins, Hartmann added.

Base Metals

The base metals were nearly all in the red on Wednesday. Copper tumbled from the pre-dawn hours until about mid-morning, then traded with a slight upward bias to finish at $3.7215/lb., down more than 6 3/4 cents. Nickel fell until the New York open, dropping below $12, rallied back, but then declined again, closing at $11.9896/lb., down 20 cents. Zinc pushed past $1.05 in the pre-dawn hours but couldn't hold its gains and wound up losing a penny and a third, at $1.0242/lb. Aluminum fell in the pre-dawn hours but rallied back during the day to $1.31/lb., unchanged, while lead's rebound got derailed as it shed 2 1/2 cents, to $1.015/lb.

Copper continued to decline, dropping to a seven-week low as commodities show weakness in the face of a firming dollar that makes the metals more expensive for those holding other currencies.

The dollar is stronger today, taking its toll on precious and base metals, said MF Global analyst Edward Meir. Chinese production data for the various metals for the month of April were released earlier -- these show solid month-over-month and year-to-date gains.

Data released by China's National Bureau of Statistics showed output of refined copper rose 22.7% in April, to 329,400 metric tons, but analysts are concerned about slowing industrial growth in that country.

The growth picture looks much worse now, with higher energy prices and a slowdown in manufacturing, said Michael Smith, president at T&K Futures & Options in Port St. Lucie, Florida. Thus, it's likely that, Copper will keep dropping, he said.

Zinc eased yesterday after Tuesday's runup based on estimates that suggest up to 500,000 metric tons of smelter capacity could be lost to the recent massive earthquake.

Prices may be supported by the disruptions, but damages would have to be very serious -- which doesn't seem to be the case -- to cause a sustained impact on metals quotations, said Lehman Brothers analyst Michael Widmer.

In company news, shares of BHP Billiton surged to a record high yesterday, as rumours swirled that a state-controlled Chinese firm was building a stake in the world's biggest mining company.

Speculation is centering on Chinese aluminum maker Chinalco, already the largest shareholder in Rio Tinto, which BHP is seeking to acquire. China's massive appetite for raw materials has it buying into sources of supply around the globe.

That's what's happening ... see you tomorrow!


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.

Learn more about First Majestic.

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