Good morning ...

Precious Metals

Gold held steady above $880 through Hong Kong and the early London market yesterday, then started up and continued steadily up for most of the day, moving past $900, and recovering from each bout of selling to finish at $901.60, up $21.20. For the week, gold pushed 2% higher.

Platinum followed a similar pattern to gold and, though it eased more late in the day, held well above $2100 to end at $2128/oz., up $47. For the week platinum gained just under 2%.

Silver shot higher, peaking at $17.04 in the late morning, but couldn't hold above $17 as it slipped to close just short of the mark at $16.94, up 28 cents. For the week, silver tacked on nine-tenths of one percent.

For the second straight day, everything came up roses for the precious metals, but unlike Thursday, this time they got a boost from the usual suspects, the falling dollar and rising oil.

Analysts noted that when gold soared to a record $1,033.90 an ounce on March 17, oil and the euro were also setting highs. Since then, however, gold has fallen off by about 13%, while crude has been on a tear, adding some 14%.

That has to change, says James Turk, of

The gold and crude-oil relationship is out of whack and due to adjust ... Gold has a lot of catching up to do and will rise as a result, Turk believes.

On top of that, there is inflation. Ever since gold became free trading in the early 70s, we've been telling you, 'Buy it as an inflation hedge', wrote Peter Grandich, editor of the Grandich Letter.

Everywhere one looks they see prices and costs rising ... [and] as the inflation concerns grow, so should the price of gold, Grandich added.

And on top of that, Safe-haven buying is likely to have reemerged on both the surging oil price but also on the appalling consumer sentiment numbers which showed consumer confidence falling to their lowest levels since 1980 -- 28 years ago, wrote Mark O'Byrne, director at Gold & Silver Investments.

But for those playing both gold and oil, Ned Schmidt, editor of the Value View Gold Report, had a blunt warning, writing that, Since no real shortage of oil exists, paper oil is being set up for a dramatic crash that will wipe out many small traders ... For that reason, gold investors should step aside entirely.

Currencies and Economic News

In the currency market, the dollar was slammed against the euro. Late Friday, the euro was trading at $1.5587 vs. $1.5432 on Thursday.

The buck was hit hard by a report from University of Michigan/Reuters which had its U.S. consumer sentiment index for May falling to 59.5 from 62.6 in April. That was the lowest level in 28 years, and fell far short of economists' projections for a reading of 61.0

The expectations index fell to 51.7 -- the lowest level since 1990 -- from 53.3 in April, and the current conditions index declined to 71.7 - also the lowest level since 1980 -- from 77.0 in April.

The expectations reading tends to reflect future spending, according to Ian Shepherdson, chief economist for High Frequency Economics. He expects a decline of 1% in on-year real consumption by the summer if these levels are sustained.

In short, there is not so much as a sniff of a hint of recovery here; the data continue to deteriorate, Shepherdson wrote. Gas and food prices are the biggest drivers of inflation expectations, so don't expect a peak until late summer.

The index data overrode Commerce Department data showing that housing starts rose to a seasonally adjusted annual rate of 1.032 million in April, well above the 939,000 that economists had been anticipating.


In the energy market Thursday, crude for June delivery blasted higher, settling at $126.29/barrel, up $2.17 after easing off a record intraday high of $127.82. June reformulated gasoline rose 5 cents, to $3.22/gallon.

Goldman Sachs raised its forecast yesterday for the average price of West Texas Intermediate crude in the second half of 2008 to $141 a barrel from $107 a barrel. Long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth, which stands at around 1% a year, Goldman said.

We believe that the market is not defying fundamentals but rather experiencing a structural repricing much like it did in 2004, searching for a new equilibrium against an uncertain long-term supply environment, Goldman wrote.

Base Metals

Outside of nickel, the base metals were all on fire on Friday. Copper rose straight from the pre-dawn hours until the late morning, only then coming off its intraday highs to finish at $3.866/lb., up nearly 8 cents. Nickel flirted with the $12 mark around mid-morning, but then collapsed, closing at its intraday low of $11.7972/lb., down almost 11 cents. Zinc's fuse was lit early in the pre-dawn hours and it rallied all day long, just coming off its intraday high to end at $1.0523/lb., up 4 cents. Aluminum also came well off its mid-morning highs but managed a gain of 2 cents, to $1.3504/lb., while lead was up sharply, easing just a bit late to $1.0496/lb., up more than 3 3/4 cents.

Copper rose to a one-week high, primarily on the declining dollar and inflation fears.

In addition, labor issues still fester in the background, lending support to the copper price, wrote Edward Meir, of MF Global.

Indeed, early in the day, leaders of a group representing employees of contractors for Codelco, the world's biggest producer, said they might resume protests because workers had not received bonuses under the agreement that ended the recent strike.

In response, Codelco said that 23,000 contract workers have received bonuses, and Chile's government said it is complying with the May 5 agreement.

But the market is delicately balanced. What we have got on the downside are concerns about falling Chinese demand. Until we see that pick up, it is unlikely we are going to see a significant push higher, said Barclays Capital analyst Gayle Berry, over against what prevents (copper) from falling too far is still these supply-side concerns.

Meanwhile, zinc headed for it best weekly gain since February, as traders remained uneasy about the extent of earthquake damage to processing facilities in China.

If it's sustained damage, it's going to be a disruption that makes markets nervous, said Giles Lloyd, a zinc analyst at London-based researcher CRU in London.

And as an additional side effect, now there is likely to be even more demand for metal[s] as fabricators gear up for the reconstruction that will be needed following [the quake], said's William Adams.

In company news comes word from Australia that the major public servant-funded superannuation funds in that country have ruled out any plan to team with Chinese interests in a raid on BHP Billiton shares, undermining the latest in a string of rumors that has driven BHP's shares to record levels.

That's what's happening ... have a great weekend and see you Tuesday!


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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