Good morning ...

Precious Metals

Gold was higher from the far East to the mid-point of London trading on Wednesday, slumped from there into New York's second hour, bottoming at $916, but then shot higher for the rest of the day including the Globex, and finished at $931.80/oz., up $12.80. Overnight, gold has been edging lower.

Platinum bounced between $2160 and $2200, with late day buying pushing it to just off its intraday high at $2201/oz., up $53. Overnight, platinum is sharply lower.

Silver matched gold's chart to a T, pushing as high as $18.10 before easing in later Globex trading to close at $17.98/oz., up 32 cents. Overnight, silver has been flat.

Precious metals investors had much to cheer about yesterday, as all appeared to be gaining momentum in their latest move higher.

It also didn't hurt that the usual suspects also lined up in their favor, with oil seeking out ever more serious nosebleed levels, and the dollar sinking against the euro, yen, Swiss franc and British pound.

Peter Spina, of is very positive, writing that, Current market expectations are rather subdued and from a contrarian standpoint that is a rather bullish sign. Gold continues to have inter-market relationships which demonstrate the present gold price is highly undervalued. The possibility is quickly growing for gold to revisit the four figures area.

However, he notes, The other side of the short-term risk/reward equation is a sizeable pullback in the oil price as short-term gains appear overextended. The US Dollar's prospects on the whole remain bleak and any short-term rebounds will be met with heavy selling. How will reversals in those short-term trends translate into the gold price going forward? They could inflict some damage into its renewed and growing momentum. Until the reversal in these pro-gold trends, I would be quite afraid to stand in front of this golden bull!

Kitco's Jon Nadler also weighed in on the oil effect, writing that, If ever there was an oil-dominated trading day, today was it as far as gold was concerned ... Trading focus remains on just how far up the value scale crude oil can be pushed by speculators before either demand simply dries up or a global recession is triggered.

And Peter Grandich, editor of the Grandich Letter, chipped in with, Oil is obviously leading gold and if the historical gold vs. oil ratio ever returns, we could see gold as high as $1,500.

Currencies and Economic News

In the currency market, the dollar continues to plummet against the euro. Late Wednesday, the euro was trading at $1.5791 vs. $1.5647 on Tuesday.

The Federal Reserve said that headline inflation, as measured by the personal consumption index, will likely spike to a range of 3.1% to 3.4% this year, up sharply from a previous forecast for 2.1% to 2.4%, made in January.

The release of the Fed's summary notes from its last meeting revealed that there were two dissenters to the rate cut that was implemented. Dallas Fed President Richard Fisher argued that the rate cuts were pushing down the dollar's exchange rate, thereby contributing to higher commodity and import prices, cutting consumer spending and hurting the economy.

The dissenters believed that another reduction in the funds rate at this meeting could prove costly over the longer run, the summary said.

Since then, various policymakers have indicated that the reductions are at an end. Fed Vice Chairman Donald Kohn says that policy is appropriately calibrated, San Francisco Fed President Janet Yellen calls current policy appropriate, Governor Kevin Warsh says that the Fed will resist bringing out the hammer again.

Most observers are expecting the Fed to begin raising rates by year's end, but the damage has already been done, as inflation that is raging far beyond official numbers demonstrates.


In the energy market Wednesday, crude for July delivery kicked off its run as front-month contract by heading for the moon, skying yet further into uncharted territory to close at a record $133.17/barrel, up $4.19. July reformulated gasoline rose 9.65 cents, to $3.3965/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks were down 5.4 million barrels for the week ended May 16. Analysts had been expecting a rise of about 900,000 barrels.

The sharp decline was due to a substantial decline in imports, said Chris Lafakis, of Moody's Crude imports averaged 9.2 million barrels per day last week, down 696,000 barrels per day from a week earlier, the EIA said.

If the bulls were looking for something to justify higher prices, this report should do it, said James Williams, of WTRG Economics. Crude imports were down and are 1.6 million barrels below the same week last year.

Base Metals

The base metals were mostly in the red on Wednesday. Copper was erratic, bouncing all over during the day, but ended up sliding somewhat, finishing at $3.8102/lb., down 3 cents. Nickel continued to hit the skids, dropping throughout and just managing to come off its intraday low at $11.2279/lb., 46 1/4 cents. Zinc failed to hold above $1, as it slipped to close at $0.9891/lb., down 2 3/4 cents. Aluminum was up most of the day though it came off its highs around noon, to close at $1.3432/lb., up less than a penny, while lead's woes were prolonged as it fell to $0.9683/lb., down a penny and a third.

Copper was unable to take any heart in the rising gold and oil prices, as traders remained focused on economic worries.

Also playing in were rising stocks. Inventories monitored by the LME gained 2,300 metric tons yesterday, nearly 2%, to 124,950 tons, although that left stockpiles still 11% smaller than a year ago.

The underlying cost drivers for the base metals are favourable for headline prices this morning, with crude oil over $130 a barrel and the US dollar softer, especially against the (renminbi), JP Morgan analyst Michael Jansen said.

However, the base metals are trading in a mixed fashion with demand concerns carrying slightly more weight today than the other factors, he was forced to conclude.

Analysts at RBC Capital Markets advanced a different theory for the weakness in the industrial metals, writing that, Open interest in the metals has fallen in recent days, so we wonder actually if there were some long base metals/short oil and gold strategies that were put on and forced to stop out.

They added that, Also, we have not really seen the presence of so-called 'hot money' players in the base metals markets in recent days and would imagine they are very active in the oil markets, at least helping to propel prices there.

In company news, Japan's Sumitomo Metal Mining Company, which intends to be among the world's top five nickel producers in the next decade, announced that it will spend about ¥200 billion (US$1.9 billion) to develop a nickel mine in the Solomon Islands in the South Pacific.

The company plans a smelter for the Solomons that will start processing in 2013, with an expected output of 30,000 tons per year. Sumimoto also has two major projects under development in the Philippines, and shares a 21% state with Mitsui in New Caledonia's embattled Goro project.

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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