Good morning ...

Precious Metals

Gold was dead flat straight through the overseas markets yesterday, but once the NYMEX opened it was off to the races, shooting as high as $887 before selling off about $8 at the noon hour, but then catching a second wind in the Globex and pushing to a finish at $881.00, up $16.60. Overnight, gold has edged higher in the overseas markets.

Platinum also caught fire at the New York open, and moved higher through the day with only minor pullbacks, ending at $2081/oz., up $49. Overnight, platinum has been pushing higher.

Silver followed gold's chart pretty closely, although it didn't fare quite as well in the afternoon, closing at $16.65, up 16 cents. Overnight, silver has been trending higher.

A very interesting day for the precious metals, especially gold, with the metal moving sharply higher despite the headwinds set up by the usual suspects, as the dollar held steady to higher and oil retreated.

What happened?

One opinion: Gold surged initially on technical buying and short covering prior to weak data in the form of Empire and Philly Federal Reserve indices, industrial production, weekly jobless claims and the TICs data -- all of which were neutral to negative, which exacerbated the move to the upside for gold, said Mark O'Byrne, of Gold and Silver Investments Ltd.

One day, of course does not a trend make, particularly in light of the metals' recent weakness, but the day did have some optimists flying the up banner.

You're seeing some new buying come back into gold, said Frank McGhee, of Integrated Brokerage Services in Chicago. The dollar has stopped its immediate- term rally. Gold is still $200 too cheap, given where oil is.

Needless to say, adding $200 would take gold well into new record territory.

If gold should detach from oil, as traders come to see it as a cheaper alternative inflation hedge, it will be a radical departure. Last year, gold moved in tandem with oil 92% of the time, according to Bloomberg.

But even gold bear Dennis Gartman, editor of the Gartman Letter, admits that, Crude is inordinately expensive relative to gold.

Currencies and Economic News

In the currency market, the dollar erased early losses and firmed against the euro for the second straight day. Late Thursday, the euro was trading at $1.5432 vs. $1.5459 on Wednesday.

The economic news of the day was mostly negative.

The New York Fed's Empire State Manufacturing index fell to a reading of negative 3.2 in May from a positive 0.6 in April. In Philadelphia, factory activity rose to negative 15.6 in May from 24.9 in April. New York's data was worse than projected, but Philly's was better.

The Fed also reported that industrial output of the nation's factories, mines and utilities dropped 0.7% in April in a broad-based decline led by falling production of motor vehicles. That was worse than a predicted 0.6% decline.

And the Labor Department reported that the number of people filing for the first time for unemployment benefits rose 6,000 to a total of 371,000 on a seasonally adjusted basis in the week ended May 10.

The recent downward tilt in industrial production and ongoing moderate job losses suggest the U.S. economy is in a mild recession, wrote Sal Guatieri, economist at BMO Capital Markets.

It's mild, of course, unless you're directly affected.


In the energy market Thursday, crude for June delivery tumbled early, as far as $120.90, before late buying pushed it nearly all the way back, to close at $124.12/barrel, down just 10 cents. June reformulated gasoline lost a penny, to $3.17/gallon.

Dow Jones MarketWatch wrote that, The expiration of options on June crude also played a key role in oil's volatile moves Thursday as did Congress' passage of legislation that offers regulators greater oversight of energy markets.

In addition, traders are seeing a round of profit taking swamping the market, said Thomas Hartmann, of Altavest Worldwide Trading. Prices have been unable to really push above the $126.50 level in the last four sessions.

Ho hum. Up one day, down the next, and the same ground keeps getting covered as crude oil prices consolidate in a range around $125, said Michael Fitzpatrick, of MF Global.

The EIA's Wednesday inventory reports showed a gain in crude stocks, as expected, but traders have reacted to this as they have to most every pullback since the winter lows: renews buying fervor, Fitzpatrick wrote.

Base Metals

The base metals were mixed on Thursday. Copper rose straight from the pre-dawn hours until about noon, then eased slightly off its intraday high to finish at $3.7867/lb., up 6 1/2 cents. Nickel was back over $12 at the New York open, but couldn't hold there, falling to $11.906/lb., down 8 1/3 cents. Zinc rallied to near $1.04 at the noon hour but hit the skids thereafter and wound up losing nearly a penny and a quarter, at $1.0125/lb. Aluminum pushed higher for most of the day, just slipping at the end to $1.3306/lb., up 2 cents, while lead was sharply up and then down to little effect as it lost a bit more than a third of a cent, to $1.0113/lb.

Copper was up the most in more than a week as traders expressed their concern about supply shortfalls.

Inventories monitored by the LME dropped 575 metric tons yesterday, or 0.5%, to 120,850 tons. It was the biggest decline since May 7.

Inventories are very low, Helen Henton, head of commodity research at London-based Standard Chartered Plc, said yesterday. With any supply disruptions, we have the potential for the market to push prices higher.

Perhaps so, but there isn't a lot of optimism out there.

We are swinging back towards the upside, but trading lacks conviction, with prices hemmed in within narrow trading bands in most of the metals, said MF Global analyst Edward Meir. A weaker dollar is supporting the complex, but a distinct lack of buying out of China, especially on the copper side, is keeping the upside potential in check.

UBS analyst John Reade concurred, saying that, We are loathe to be long base metals in general at the moment as prices are elevated by speculative length and the prospects of ongoing production disruption ... Consumer demand is soft, based on our conversations with the trade.

In company news, Reuters wrote that: Chinese interests have approached a major Australian superannuation and investment fund to be their partner in a multi-billion-dollar swoop on 9 percent of BHP Billiton The Australian newspaper reported.

Under the terms of the proposed deal, the Chinese would take 4.5 per cent of BHP Billiton, while the other half would be split between the Australian fund and a global private equity investor, the paper said on it's Web site.

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.

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