Good morning ...
Gold was flat from the far East straight through London trading on Tuesday, but it took off in the second hour of the New York session, shooting as high as $923.40 before tailing off after the noon hour and finishing at $919.00/oz., up $13.60. Overnight, gold has been pushing higher.
Platinum was all over the place, from a high near $2170 in Europe to a low near $2120 in New York, but when all was said and done it ended with a loss of just $3, to $2149/oz. Overnight, platinum has been trending higher.
Silver's rocket launch came at the same time as gold's, and it was even more dramatic since the metal didn't pull back in the afternoon hours, but kept on going to close at $17.66/oz., up 72 cents. Overnight, silver is sharply higher.
Although platinum lagged, it was otherwise a banner day for the precious metals as both gold and silver appeared to build on earlier consolidations. Gold is now up 6% over the past four sessions.
And of course it didn't hurt that the usual suspects, high-flying oil and the tanking dollar, both lined up in their favor.
The latest analyst to draw attention to the gold/oil relationship was Peter Spina, of GoldForecaster.com.
As oil nears $130, Spina wrote, the historical relative value of gold to oil is now again at extreme lows. This measurement, among with others, places the true value of gold much higher than we are seeing it presently trade at. With today's very weak US Dollar and with continual prospects of additional expansion of the money supply, gold becomes even that more attractive at this present time. The short-term prospects are encouraging and a return to the mid-$900's is quite possible over the coming weeks. Despite the appearance of weakness in this market, the short-term bullish factors could become drivers of the gold price higher. Sub-$900 pullbacks are going to look more and more attractive going forward. Capital seeking shelter from monetary debasement will continue to deviate to preservation assets such as gold and silver.
Technicians were pleased, as well. The technical picture has gone very positive on gold and so we could see a good run now, wrote Julian Phillips, also of GoldForecaster.com.
With inflation rising, this is the beginning of what we feel will be a decaying global economic picture, with the exception of Asia, in 2008, which will benefit gold and silver, Phillips wrote. So, I don't think the summer will see a long period of 'doldrums' as many expected.
Currencies and Economic News
In the currency market, the dollar fought back from its session lows but still sank against the euro. Late Tuesday, the euro was trading at $1.5647 vs. $1.5507 on Monday.
The dollar was weaker on the day, as the buck really never recovered from the early sell-off after the Labor Department's PPI numbers, wrote currency strategists at Brown Brothers Harriman.
The producer price index slowed to 0.2% in April after seasonable adjustments, with food prices flat and energy prices falling. Economists were projecting a 0.4% rise
However, core PPI, which excludes food and energy prices, rose a higher-than-expected 0.4% in April. Core prices are up 3% in the past year, the biggest year-over-year rise since late 1991.
Also Excluding food and energy, crude materials prices increased a whopping 7.9%, a level exceeded only twice since record keeping began in 1972, said Tony Crescenzi, of Miller Tabak & co.
All this could leave the Federal Reserve with reduced incentive to further cut interest rates.
Increased inflationary pressure, especially in the non-food and non-energy components, could hinder further monetary stimulus during the remainder of 2008, wrote Matthew Strauss, of RBC Capital Markets.
And Fed Vice Chairman Donald Kohn may have supported that view when he said in a speech that the Fed is satisfied with its target for overnight lending rates at 2%.
In the energy market Tuesday, crude for June delivery kept on its steep up trajectory, notching yet another new record close at $129.45/barrel, up $2.02. June reformulated gasoline rose 6 cents, to $3.30/gallon.
The end of yesterday's trading marked the expiration of the June crude contract, which may have contributed a bit of extra volatility to the day's action.
Traders were also apparently moved by comments from legendary Texas oilman T. Boone Pickens, who predicted that crude would reach $150/barrel by year's end.
Speculators, Pickens said, have nothing to do with record prices, citing instead the reality that said world oil supplies are declining and output is not keeping pace with demand.
The base metals were mostly down on Tuesday. Copper had some sharp ups and downs but in the end was little changed, finishing at $3.841/lb., up 1 1/3 cents. Nickel was off steeply in the pre-dawn hours, but recovered through the day to get back to $11.6898/lb., down 4 cents. Zinc fell below $1 several times but recovered each time to remain above it and close at $1.0167/lb., down a half-cent. Aluminum was little changed, ending in the middle off the day's trading range at $1.3341/lb., down less than half a cent, while lead capsized in the pre-dawn hours, falling below $1 and never recovering, ultimately dropping 3 cents to $0.9816/lb.
Copper managed to hold steady as the dollar weakened and rising oil prices gave a boost to other commodities.
Still, there is little real enthusiasm at the moment.
Stocks and the weak state of nearby physical demand in China seem to be troubling the market right now, said Ed Meir of MF Global.
Aluminum was also pressured by rising inventories. Yesterday saw a 22,175 metric ton increase in stockpiles monitored by the LME, to 1.06 million tons. Aided by Monday's jump of over 10,000 tons, aluminum stocks hit a four-year high.
Supply disruptions are still likely in some metals and where that is the case, prices may still have further to rise, said William Adams, of BaseMetals.com.
But where supply is adequate, where stocks are high enough to cushion against unexpected disruptions, then the likelihood of slower economic growth may well keep prices under pressure, Adams said.
The inventory story was the same with lead, as LME stocks have grown to 64,450 metric tons, the highest since Sept. 25, 2006. The market is moving into a surplus of 40,000 tons this quarter, from a shortfall in the first three months, according to Gayle Berry, an analyst at Barclays Capital in London.
Berry also noted that purchases in China, the largest user of lead, have slowed this year as buyers wait for the government to release rules in June on the use of electric bicycles. Such batteries account for about 20% of the nation's lead usage.
And in company news, contract workers at copper miner Codelco don't plan any more protests since they are getting their promised bonus payments, according to Claudio Valenzuela, a spokesman for the Confederation of Copper Workers.
That's what's happening ... see you tomorrow!
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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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