Good morning …

Precious Metals

Gold had a boring, if mildly positive, day on Friday, as many traders left their desks to get a jump on the Memorial Day weekend, locking the metal up in a tight range between $950 and $960, leading to a finish at $956.50/oz., up $2.60. For the week, gold added 2.8%.

Platinum fell off in the far East, rebounded to the New York open, then traded choppily through the rest of the day, to little ultimate effect as it ended at $1153, up $4. For the week, platinum was up 4.7%.

Silver was also off in Hong Kong, but rose sharply in Europe, peaking at $14.81, then traded inside a 20-cent range for the rest of the day, closing in the middle at $14.69, up 14 cents. For the week, silver gained a robust 5.3%.

The precious metals did well, holding onto their gains for the week in light trading ahead of the holiday weekend. The usual suspects did their part to provide support, with oil rising and the dollar falling again.

Of the two, “The gold price is predominantly driven by the dollar weakness at the moment,” said analysts at CommerzBank. “As long as the dollar remains on the back foot, gold should continue to rise.”

As has been the case for the past seven sessions, with gold pushing higher, holdings in the Gold SPDR Trust, the largest metal-backed ETF, haven’t budged. That has some wondering why, but in the end GLD is still a stock, not physical metal.

Looking ahead, Julian Phillips, of Goldforecaster.com, is highly bullish, writing that, “Gold has broken out of its long consolidation and looks set to take on $1,000 again.”

Phillips takes on the historical question, saying that, “This time of the year the gold market moved into the ‘summer Doldrums,’ but the last two years has seen this seasonality fade as investment demand knocked away this seasonality. With Indian buyers virtually absent from the international gold market since October 2008 until April this year we could have expected 'Doldrums’ during that time. Now their absence is unnoticed as investment demand took the reins of the gold market and looks like holding them. So expect those Trade Winds to blow during summer and make the gold market an exciting place to be.”

The proper stars do seem to be aligning.

Currencies and Economic News

In the currency market, the dollar prolonged its freefall against the euro. Late Friday, the euro was trading at $1.3996 vs. $1.3904 on Thursday.

The buck fell to its lowest level vs. the euro since December, as the flight to the greenback continues to wane.

“We've turned to a more dollar-bearish environment,” said Nic Pifer, of RiverSource Investments. “As markets start to loosen up again and risk appetite comes back into vogue -- in high-yield debt, emerging markets and equities -- that safe-haven demand for the dollar has dissipated.”

The dollar may be stuck between a rock and a hard place. “In the near term, the stars are aligned against the U.S. dollar,” wrote foreign exchange strategists at Brown Brothers Harriman.

“If the news stream is good,” they wrote, “we are told investors are less risk averse and do not need the dollar's security. If the news stream is poor, we are told the U.S. is in horrific shape and the budget deficit and Fed's balance sheet will swell even more … It is difficult to see what will break this psychology in the coming weeks.”

Some analysts have expressed concern that the U.S. might not maintain its AAA credit rating, after the U.K.'s top-tier rating was given a negative outlook by Standard & Poor's on Thursday.

However, I don't think institutional investors are all that concerned over what S&P may do in the future, said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union.

“We would have to see a continuing onslaught of real deterioration in the U.S. financial situation for its rating to come under threat,” Sullivan added. “The dollar's issues are mostly related to quantitative easing and how inflationary that might be. Also, risk aversion has lessened considerably” recently.

Energy

In the energy market on Friday, crude for July delivery advanced, closing at $61.67/barrel, up 62 cents. June reformulated gasoline rose 4.11 cents, to $1.8408/gallon.

“The dollar is driving oil higher once again,” said Phil Flynn, of Alaron Trading. “Fears about our debt and fears over our credit rating are creating a crack in the confidence that we can print our way to economic prosperity.”

Traders were looking ahead to OPEC’s scheduled meeting Thursday in Vienna, at which the cartel will discuss production and oil prices. OPEC raised its production in April, for the first month in the previous eight.

Most analysts are not expecting another cut in production quota, but believe the talk will center on member compliance.

In the natgas arena, natural gas concluded another dismal week by falling 8.8 cents, to $3.515 per million British thermal units. For the week, natgas was off more than 14%.

Base Metals

The base metals were all green shoots on Friday. Copper started up in the pre-dawn hours and, except for a late morning downblip, maintained momentum through the day to finish at $2.0741/lb., up 6 1/4 cents. Nickel was up all day, closing at its intraday high of $5.7281/lb., up 26 1/3 cents. Zinc also blasted to its intraday high of $0.6737/lb., up more than 3 cents. Aluminum gained modestly, ending at $0.6381/lb., up less than a half-cent, while lead added a penny and 2/3, to $0.646/lb.

Copper led the industrial metals higher, amid record Chinese imports and steadily declining inventories.

Also factoring in was the weaker dollar.

Word from Chinese customs yesterday was that imports of copper rose by 7% in April, as buyers replenished stockpiles. “The strength of Chinese import demand has been pretty phenomenal,” Kevin Norrish, of Barclays Capital in London. “We’ve seen that confirmed again in the import statistics.”

Inbound shipments of refined copper advanced to 317,947 tons in April—more than double imports in April 2008. China imported 1.07 million tons of copper in the first four months, according to customs data. Last year it imported just under 1.5 million tons, according to Macquarie Group London.

At the same time, inventories in warehouses monitored by the Shanghai Futures Exchange fell 4% to 33,798 metric tons from 35,389 tons a week ago.

And the London drawdown continued, albeit more modestly than in recent days. Copper inventories monitored by the LME were down 2,700 metric tons yesterday, to 333,375 tons.

Among the other base metals, “We believe fundamentals in the nickel market will start to improve by the end of the year as the market surplus declines rapidly and as the stainless steel sector enters a period of restocking,” Deutsche Bank analysts wrote.

In company news, Aluminum Corp. of China (Chinalco), the largest shareholder in Rio Tinto Group, is considering changing its planned $19.5 billion investment in the world’s third-largest mining company, Caijing Magazine wrote.

“We are indeed considering whether it’s possible to adjust our plan, but the possibility of a change is very small,” a Chinalco executive told Caijing.

That’s what’s happening … have a great Memorial Day weekend, be sure to remember the meaning of the day and, with the markets closed on Monday, we’ll see you back here next Wednesday!


NEWS YOU CAN USE:

Toronto-based Inter-Citic Minerals Inc. (TSX: ICI) is a gold exploration and development company, developing what could be one of China’s largest open-pit gold deposits. Inter-Citic’s 279 sq km Dachang Gold Project in Qinghai Province, China, with 50,000 meters of drilling underway in 2008. The total NI 43-101 compliant Inferred Mineral Resource Estimate at Dachang now stands at 2.9 million oz Au contained (approximately 25 million tonnes with an average grade of 3.6 gpt Au), with more drilling underway on the DMZ to further define the existing 43-101 inferred mineral resource estimate in preparation for a scoping study, as well as additional drilling in highly prospective new areas focused on resource expansion. Gold mineralization in the Dachang Main Zone begins at surface and has not been significantly drilled below 150 meters, and numerous known areas of surface gold mineralization on adjacent and other parts of the property have the potential for further discoveries. The Dachang Main Zone itself remains open at depth and along strike. Under a 30-year joint venture agreement with the Qinghai Geological Survey Institute (QGSI – the provincial geological survey body), Inter-Citic has a fully-vested 83% interest in the property, with 17% belonging to QGSI. Inter-Citic has a further option to increase its total interest to 90% at pre-feasibility. The Dachang property consists of several exploration license areas. They have all been renewed by the Company as they have come due in regular course. The business license for the Dachang Gold Project is currently valid to December 26, 2033. View their full website here.



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