Good morning …

Precious Metals

Gold was up in the far East on Thursday, declined slowly to late morning in New York, but then really ignited, shooting up nearly $20 by the early Globex, then leveled off to finish a second strong day in a row at $953.90/oz., up $16.70. Overnight, gold has been flat.

Platinum, which was higher in Hong Kong, plummeted from there to late morning New York trading, dropping $25, but then abruptly reversed course and bulled its way back into the green, ending at $1149, up $6. Overnight, platinum is unchanged.

Silver submitted a similar pattern to gold’s, but was up even more sharply, rising nearly 50 cents from intraday low to peak, and closing at $14.55, up 30 cents. Overnight, silver is trending higher.

The beat goes on, as the precious metals continue to perform in a stellar manner—with gold at its highest since March and silver since February—as the steadily-slumping dollar makes them shine as an alternative investment/currency.

Declining equities, not just in the U.S. but worldwide, also contributed to the metals’ appeal yesterday, while a falling oil price failed to dampen traders’ enthusiasm.

“The fact equity markets appear to have stalled and inflation fears are on the increase should give gold increased upward momentum,” wrote James Moore, an analyst at TheBullionDesk.com.

In the technicians’ view, “Gold prices are expected to continue on their upward path in the near term, with the next key resistance offered at $970 from the March 20 high,” wrote Tom Pawlicki, of MF Global.

“With crude oil breaking out above the $60 level and with index funds pouring money into the entire commodity sector, it is very difficult for the commodity bears to gain much downside traction,” wrote Dan Norcini on jsmineset.com. “The sum of money flowing into tangibles is enormous as a great deal of those funds were sitting in cash on the sidelines and waiting for a signal to get long. That they have done and are now doing and that is where the buying pressure is originating from across the entire commodity complex. Keep in mind that they will buy until they get their allocation done irrespective of any particular fundamental factors. Technical money flows more and more dominate the world of trading and investing and arguing against that kind of money is worse than spitting into the wind. Just like when they are blindly selling – these guys blindly buy and very few are willing to step in front of such a freight train whether it is coming or going.”

And some are beginning to wonder what’s up with GLD. The largest gold ETF has added almost no metal during the recent rally.

Currencies and Economic News

In the currency market, the dollar continued to fall against the euro. Late Thursday, the euro was trading at $1.3904 vs. $1.3829 on Wednesday.

The dollar index, which tracks the buck against a trade-weighted basket of six major counterparts, fell to its low point for the year as Treasury yields rose and commodity prices hinted at higher inflation.

There was a spate of economic data through which to pick yesterday, beginning with the Philadelphia Fed’s report on manufacturing in that region. While the reading improved to -22.6 in May, from -24.4 in April, that’s still very weak, as numbers below zero indicate contraction in the industry.

Next, the Labor Department reported initial jobless claims, which dropped by 12,000 to 631,000 in the week ending May 16. However, the number of continuing claims for the week ending May 9 (considered a better indicator) was 6.66 million, an increase of 75,000 from the previous week, and the highest reading on record.

“These latest numbers do not encourage the idea that the pace of layoffs is dropping sharply,” said Ian Shepherdson, of High Frequency Economics.

Finally, the Conference Board’s index of leading indicators climbed to 0.1% in April, the first increase in seven months, from -0.3% the prior month. The move to a positive number indicates the recession will be less intense in the near term, according to the Board.

“The question is how long before declines in activity give way to small increases. If the indicators continue on the current track, that point might be reached in the second half of the year,” said Board economist Ken Goldstein.

Energy

In the energy market on Thursday, crude for July delivery fell back, closing at $61.05/barrel, down 99 cents. June reformulated gasoline dropped just under a penny, to $1.7997/gallon.

Analysts cited concerns over the economy in the U.S., as well as the deepening recession in the U.K.

Britain took a hit yesterday as Standard & Poor’s lowered its credit outlook on the U.K. to negative from stable for the first time ever. The ratings agency cited the country's ballooning debt, which could continue to expand even if the economy recovers.

The move raises the ugly prospect of a credit-rating downgrade in Britain, and hints at the possibility of a lowering of the outlook in the U.S., which has embarked on a similar path of big spending and quantitative easing.

“I think there will be a downgrade on the U.K. and I think there will be a downgrade on the U.S. outlook from one of the Big Three” credit-rating firms, said Stephen Gallo, analyst at Schneider Foreign Exchange.

Base Metals

The base metals were adrift on a red sea on Thursday. Copper declined steadily from the pre-dawn hours through the noon hour, after which it edged back up over the $2 mark to finish at $2.0121/lb., down 6 2/3 cents. Nickel also sank all day, barely coming off its intraday lows to close at $5.465/lb., down almost 18 cents. Zinc followed a similar path, ending at $0.6421/lb., down 2 1/4 cents. Aluminum fell hard, giving up nearly 2 1/4 cents, to $0.6381/lb., while lead plunged more than 2 1/3 cents, to $0.6294/lb.

Copper led the industrial metal sector lower, as gloomy remarks about the future of the economy from Fed officials made their way into print.

The policy makers cited a “significant downside” potential for the economy, projecting that the recession will linger through this year with unemployment reaching as high as 9.6 percent. The forecasts are much more pessimistic than the Fed’s January estimates.

That led Edward Meir, of MF Global, to write that, “Some of the euphoria about an imminent recovery has perhaps gotten slightly ahead of itself,” and he predicted that copper may be in for a “further retreat.”

Also factoring in were the jobless numbers and the selloff on Wall Street, which raised questions about both the economy and the stability of the equities markets, which have seen a big runup in recent months.

Yesterday’s “setback in metals will not lead to yet another ‘buy the dip’ situation,” Meir added. The downtrend “may last for several more sessions, especially if overbought U.S. equity markets also show signs of fraying.”

Still, the stockpile situation continues to be supportive. Copper inventories monitored by the LME were down another 5,400 metric tons yesterday, to 336,075 tons.

In company news, Aluminum Corp. of China (Chinalco) may take a smaller stake in Rio Tinto Group in order to win approval for its $19.5 billion investment, according to the Sydney Morning Herald.

Chinalco is open to letting Rio sell convertible bonds to other shareholders, reducing its planned stake from 18% to 15%, the newspaper said. That may allow the state-owned entity to avoid breaching foreign ownership rules, while placating investors angry at not being offered stock on the same terms.

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


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