Good morning …

Precious Metals

Gold was essentially unchanged to mid-morning in New York on Monday, at which point it tumbled more than $11, moved slightly higher into the late Globex, and finally fell again to finish at $917.40/oz., down $13.50. Overnight, gold has edged higher.

Platinum was flat until the second hour in New York, but then took off in the opposite direction from gold, shooting higher straight through the Comex before leveling off on the Globex to end near its intraday high at $1129, up $28. Overnight, platinum is trending higher.

Silver peaked at $14.05 at the London open, moved jaggedly lower from there to mid-morning in New York, rallied back to the late Globex but eased at day’s end to close at $13.76, down 19 cents. Overnight, silver has pushed higher.

Though platinum fared very well, it was a disappointing day for gold and silver, which fell off even though the usual suspects were supportive, with the buck weakening and oil pushing higher.

Analysts cited the big stock market rally, which had investors jettisoning safe haven holdings for riskier assets.

As Kitco’s Jon Nadler put it, gold is “once again characterized by more of an economic recovery anticipation motivation and less of a safe-haven-oriented one … Some of the funds that have been piling into gold in the last few weeks have pulled the profit trigger once again after the rally.”

Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 6.8% in the week ended May 12, according to the Commodity Futures Trading Commission.

Nadler added that, “There’s a tug-of-war going on now between: Do we see an economic recovery and do we still see safe-haven flows,” and as of the moment, “People see the gains in stocks and they think, ‘Let’s take a little bit of money off the gold table and put it into where the action is’.”

Also factoring in was slowing jewelry demand in the past week, which may mean “gold above $920 an ounce is too pricey for many buyers,” wrote John Reade, an analyst at UBS AG in London. However, he added, “this is the first time we have seen any noticeable jewelry demand above $900 an ounce, and in particular, the buying from India suggests that demand later in the year should increase a lot ahead of the Diwali festival [in October].”

Currencies and Economic News

In the currency market, the dollar declined against the euro. Late Monday, the euro was trading at $1.3535 vs. $1.3471 on Friday.

“The driver continues to be the risk backdrop, as Wall Street adds to gains,” said analysts at Action Economics.

There was little effect from the National Association of Home Builders' index on the mood of the industry rising to 16 in May, in-line with economists' predictions, from 14 in April. While any advance is welcome news, that reading still has a long way to go before reaching 50, the dividing line between expansion and contraction in the sector.

Nevertheless, it is the highest level since September, which suggests to some that stabilization may have arrived in the housing market.

Meanwhile, Treasury Secretary Geithner attributed the current financial mess to failures on the part of both government and the private-sector, and said it will take reforms of both to get us out.

Geithner said he's not interested in more bailouts, or in having the government take the place of markets, and that even the federal government will have to “get back to living within our means when the crisis passes.”

We shall see on that one.

Energy

In the energy market on Monday, crude for June delivery surged, closing at $59.03/barrel, up $2.69. June reformulated gasoline gained 7.75 cents, to $1.7581/gallon.

Traders responded both to the upbeat housing report and to concerns that militant unrest in Nigeria may disrupt supplies from Africa's biggest oil producer. There have been a couple of ominous developments in recent days.

First, a pipeline supplying the Nigerian Gas Company in the Niger Delta's Abiteye community was blown up Saturday, apparently in retaliation for army action that destroyed a militant camp and rescued a crew hijacked by local militants. Chevron has oil and gas facilities in Abiteye.

Then the Movement for the Emancipation of the Niger Delta, Nigeria's main militant group, said yesterday it would put in place blockades on key waterways in the Niger Delta to try to prevent crude exports.

These apparently outweighed continuing weak demand.

As Hussein Allidina, an analyst at Morgan Stanley, wrote, the fundamentals in the oil market “have been weak and are getting weaker … Equally apparent, however, is that the fundamentals have had very little impact on crude oil's recent price action.”

Base Metals

The base metals were modestly higher on Monday. Copper slogged along below $1.98 until the late pre-dawn hours, but pushed upward from there to finish at its intraday high of $2.0374/lb., up 4 cents. Nickel was down and then up equally, closing little changed at $5.555/lb., up just over a penny. Zinc followed copper’s path, ending just off its intraday highs at $0.6746/lb., up a penny and two-thirds. Aluminum had a quiet day, shedding a quarter of a cent, to $0.6721/lb., while lead pushed higher, adding just under a penny, to $0.6725/lb.

Copper turned around and bounced back over $2 in New York as it followed booming equities and a weakening dollar higher. With the housing industry crucial to demand for copper, the metal also got a lift when building supplier Lowe’s reporter a smaller-than-expected decline in quarterly profit.

There was also anticipation of more positive news on the home front, with the release of April housing starts data, due out today.

But there were concerns raised by news out of China, which arrived after the close of market on Friday. Copper inventories monitored by the Shanghai Futures Exchange expanded for a third time last week, by 28%, to 35,389 metric tons. That’s the highest level since the week ended March 6.

“What’s weighing on investors now is whether or not Chinese demand will be able to absorb the record imports,” said Zeng Chao, of Everbright Futures Co.

Chinese copper imports reached a record 399,833 tons last month, despite the country experiencing a widening export slump that pushed industrial output lower than expected. “With record imports and rising domestic stockpiles, we see cash prices start to fall and this is weighing on the futures market,” said Zeng.

China also factored into the zinc equation, on speculation supply of galvanized sheets may not meet demand from the country’s auto industry. Traders are expecting strong domestic demand for automobiles, said Southwest Futures Co. analyst Jia Zheng, and she added that, “Stockpiles are running low.”

Meanwhile, the copper stock drawdown continues. Copper inventories monitored by the LME were off 4,250 metric tons yesterday, to 353,550 tons, the lowest level since early January.

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


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