Good morning …

Precious Metals

Gold was off steeply in the far East on Tuesday, falling nearly to $940, but as soon as Hong Kong closed, it was up, up and away, with the metal surviving an early dip in New York to push almost back to positive territory, as it finished at $952.10/oz., down $4.40 from Friday. Overnight, gold has drifted lower.

Platinum fell in the far East and Europe, plummeted again in the first hour in New York, before regaining some of its footing during the rest of the day, but still ended at $1133, down $20. Overnight, platinum has been flat.

Silver had a wild day, plunging from Hong Kong to the mid-point of the London session and putting in a bottom at $14.28, rose to the New York open, dropped off to mid-morning, then rallied to the noon hour and leveled off for the rest of the day, closing at $14.61, down only 8 cents. Overnight, silver is trending lower.

The precious metals did quite well yesterday. Though overall it was a down day, they rallied strongly off their lows, holding their own despite countervailing forces that were quite strong: sharply higher consumer confidence, a strengthening dollar, and a surge in the equities markets. Only rising oil was supportive.

Geopolitical jitters factored in, although not perhaps in an expected manner.

As Kitco’s Jon Nadler put it, gold was falling as “the dollar regained its attractiveness following yet another display of missile-based military machismo by North Korea … Normally, gold would react in a positive fashion to such geopolitical fireworks.” However, “the world and market scenes have been anything but normal of late.”

After a buying hiatus that had some investors puzzled, the SPDR Gold Trust, the biggest exchange-traded fund backed by gold, added to its stash yesterday. GLD’s holdings shot up to 1,118.76 metric tons (35.97 million ounces) on Friday, 13.14 metric tons (422,000 ounces) higher than a day earlier. It was the first increase in eight sessions.

Looking ahead for gold, the tea leaf readings are mixed, say technicians from Standard Bank Group.

A break and close above $1,050.40 “provides warning that an important breakout” has occurred, wrote Darran Grabham, the bank’s technical analyst. “The positive implications are substantial, with the minimum objective situated at $1,250.”

However, Grabham wrote, “On the downside, gold weakness through $864 turns the outlook bearish, and the weaker trend could then continue towards $802.”

Near term, a negative bias is expected to dominate in the days ahead as the positive trend has faltered in the $960 to $966.70 area, according to Grabham. “A decline into the $940 to $935 zone is anticipated, with $935 regarded as an important support point over the next week or so,” he said.

Currencies and Economic News

In the currency market, the dollar arrested its freefall against the euro. Late Tuesday, the euro was trading at $1.3909 vs. $1.4051 on Friday.

Analysts said that anxiety after North Korea's nuclear test seemed to fuel a desire for the relative security of U.S. currency and bonds. In addition to its underground nuclear test Monday, North Korea also reportedly test-fired two short-range missiles yesterday, defying warnings from the international community.

But the day’s most influential submission was from the Conference Board, which reported that its consumer confidence index surged to 54.9 in May from an upwardly revised 40.8 in April. The gain was the fourth-largest in the 32-year history of the survey, and the index hit its highest level in eight months, contrary to economists’ expectations for a rise only to 43.

The confidence number overrode more hard economic data that remains dismal. The national Case-Shiller home price index, released yesterday, showed that home prices fell a record 19.1% in the first quarter of 2009, year-over-year.

Prices in 20 selected cities fell 2.2% in March, leading David Blitzer, chairman of the Standard & Poor's committee which compiles the index, to comment that, “We see no evidence that a recovery in home prices has begun.”

Though some recent numbers appear to suggest that the housing market might be stabilizing at very low levels, most analysts remain skeptical that it may have bottomed.

“We can cheer all the data under the sun but until prices stabilize, I imagine that no sustainable gain in the pace of sales will be seen,” wrote Dan Greenhaus, equity strategist for Miller Tabak & Co. With inventories still very high, “downward pressure on home prices should continue for the foreseeable future.”

And across the pond, data from Germany's Federal Statistics Office showed that Europe's largest economy posted the steepest decline since records began in 1970, with first-quarter gross domestic product shrinking 3.8% compared to the final three months of 2008.

Energy

In the energy market on Tuesday, crude for July delivery advanced, closing at $62.45/barrel, up 78 cents. June reformulated gasoline rose 1.16 cents, to $1.8524/gallon.

Analysts speculated that crude was following consumer confidence higher yesterday, with hopes raised for an economic recovery.

But all eyes will be on OPEC’s scheduled meeting Thursday in Vienna, with the general expectation being that the cartel will not cut production any further.

Saudi Arabia's Oil Minister Ali Naimi yesterday called for OPEC to stay the course with its production and called for better compliance with past output reductions, according to Dow Jones Newswires.

“There are going to be some members who are more compliant with the target, who are going to be quite upset with their colleagues who have increased their production in April,” said Kevin Saville, of Platts Global Alert.

“What's going to happen is behind closed doors, you'll have members saying that we need to recommit to the cuts that we implemented at the end of last year,” Saville added.

Base Metals

The base metals were mostly in positive territory on Tuesday. Copper fell all through the pre-dawn hours, but once New York opened it was all on the opposite direction, as it finished just off its intraday highs at $2.1137/lb., up just short of 4 cents from Friday. Nickel was flat until early New York trading, then took off, blasting past the $6 mark to close at $6.0267/lb., up almost 30 cents. Zinc was modestly lower at $0.6674/lb., down two-thirds of a cent. Aluminum edged higher, ending at $0.6426/lb., up nearly a half-cent, while lead added two-thirds of a cent, to $0.6428/lb.

Copper led the charge higher, as the big jump in consumer sentiment caused the market mood to turn on a dime. Earlier in the day, the metals had fallen, as the dollar strengthened and investors were worrying that world economies could take longer than expected to recover, driving down demand.

The U.S. Dollar Index, tracking the strength of the buck against 6 other currencies, was up nearly 1%. And that reduces the appeal of commodities as a hedge against inflation.

Overall, Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey, waxed enthusiastic, saying that, “This [report] is very positive, better than expected. I was looking for positive, but this is very solid. This is going to arrest any erosion we've seen in the (stock market) rally.”

Kenny added that, “This comes on top of the fairly negative home pricing number, but what comes out on top in terms of momentum is consumer confidence. It's more relevant and closer to real time. Housing is more backward-looking.”

Stockpile data was supportive, as well. Copper inventories monitored by the LME declined 6,800 metric tons yesterday, to 326,575 tons.

However, some analysts have turned cautious, citing concerns about falling levels of canceled copper warrants, and some indications of slowing demand from China, the world's leading copper consumer.

Canceled warrants of copper -- material earmarked for delivery -- fell to 47,625 metric tons from 52,875 tons on May 21 while, according to Bloomberg, “Reuters reported that China’s State Reserves Bureau sold copper in the past month and may put as much as 50,000 metric tons on the market, citing industry sources that said they were offered some of the metal.”

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


NEWS YOU CAN USE:

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