Good morning ...
Gold held steady from the far East through London trading on Tuesday, but once the NYMEX opened it fell like a stone, and a modest rally off of $905 was snuffed out during the Globex, as it finished at $904.40/oz., down $19.80 from Friday. Overnight, gold has continued to decline.
Platinum had a similar late morning rebound, but it too went south after that, ending at its intraday low of $2115/oz., down $55. Overnight, platinum is sharply lower.
Silver tracked gold very closely, only more so, dropping some 4% and capping an exceedingly down day by closing at $17.42/oz., down 77 cents. Overnight, silver has fallen further.
Despite that a firming dollar and declining oil lined up against the precious metals, the selloff was severe.
Traders also ignored the hard data that rolled out yesterday. As the Hightower Report noted: The gold market started out soft and then came under more intense liquidation pressure as the session unfolded. While the Dollar didn't exactly explode on the upside, the gold trade seemed to be disappointed in the Dollar's capacity to bounce after another failed attempt to trade under 72.00. With oil prices under pressure and the US equity market at times showing impressive strength, it is possible that some flight to quality/safe Haven buyers of gold were simply pushed to the sidelines. With a host of scheduled US data showing weakness on Tuesday morning and the European numbers also soft, it would almost seem like the gold market was under pressure because of the fear of too much slowing.
It's all about oil [yesterday], said Frank McGhee, the head metals trader at Integrated Brokerage Services in Chicago. The metals are susceptible to the ebb and flow of the oil market.
The beginning of another correction? No, says Mark O'Byrne, of Gold and Silver Investments Ltd., who wrote that, Gold was up 3% last week and silver surged nearly 8%, and thus profit-taking would be expected in the early part of this week.
In fact, SPDR Gold Trust (GLD), the biggest exchange-traded fund backed by bullion, last week saw its inventory rise by 1.3%. Formerly known as StreetTracks Gold Trust, the company underwent the name change on May 21.
As well, hedge-fund managers and other large speculators increased their net-long position in gold futures in the week ended May 20. Commodity Futures Trading Commission data released on May 23 showed that net-long positions rose by 29,181 contracts, or 19%, from a week earlier.
Currencies and Economic News
In the currency market, the dollar firmed against the euro. Late Tuesday, the euro was trading at $1.5696 vs. $1.5763 on Friday.
The day's economic numbers were pretty grim.
The Conference Board reported that its May consumer confidence index fell to 57.2 from a reading in April that had been revised up to 62.8 from a prior estimate of 62.3. That represents a 16-year low, and was far below economists' expectations for a reading of 59.5. Confidence is off by nearly 50% since last July.
With home price deflation deepening, the unemployment rate rising, and food & energy costs climbing, there's little to buoy consumers' outlook, wrote Benjamin Reitzes, an economist at BMO Capital Markets. Yet the stock market rose and gold fell. Go figure.
The deflation was confirmed by Standard & Poor's 20-city Case-Shiller home price index, which fell 2.2% from February to March, for a 16th consecutive decline in prices. Home prices in the 20 major U.S. metropolitan areas have now plunged by a record 14.1% in the past quarter.
Meanwhile, the euro got no lift from comments by European Central Bank Governing Council member Axel Weber. Weber said in an interview that rate cut speculation this year is wishful thinking, given high inflationary pressures and robust economic growth.
In the energy market Tuesday, crude for July delivery eased a bit, closing at $128.84/barrel, down $3.34. July reformulated gasoline lost 2 cents, to $3.38/gallon.
Traders were clearly in a profit-taking mood yesterday, after crude soared by nearly 5% last week.
Oil is getting heavy after last week, said John Kilduff, of MF Global. We saw parabolic action [last week] and signs that we may have made a top.
The market shrugged off supply concerns. In early Tuesday in electronic trading, oil topped $133 a barrel after Royal Dutch Shell confirmed an attack on one of its pipelines claimed by a separatist group in the key Niger Delta. Shell said some production had been stopped to contain an oil spill.
Also ignored was a report that Iran's exports fell by about 200,000 barrels per day, through the period ended May 20, with the National Iranian Oil company saying the phenomenon was seasonal and was to be made up later.
The base metals were mostly in the red on Tuesday. Copper tumbled during the early part of the New York session, but rallied strongly from there to regain most of the lost ground and finish at $3.7999/lb., down a penny from Friday. Nickel succumbed to selling after Friday's rally, but came off its early lows to close at $10.7002/lb., down a bit more than 30 cents. Zinc was in a downtrend most of the day, ending at $0.9654/lb., down more than a penny. Aluminum was up in the pre-dawn hours but gave it all back, shedding a half-cent, to end at $1.3408/lb., while lead bucked the trend, tacking on nearly a penny, to $0.912/lb.
Copper more or less held its ground on falling stockpiles. Inventories monitored by the LME lost 975 metric tons yesterday, to 124,400 tons.
The others were mostly off, leading BaseMetals.com analyst William Adams to comment that, After the weakness seen last week, the metals are well positioned to see some bargain hunting, but much will depend on how confident the market is.
Well, isn't that always the case?
Meanwhile, nickel took the biggest hit in the group. Nickel prices are likely to continue to trade heavily over the medium to long term, said JP Morgan analyst Michael Jansen. This reflects two major price drivers -- ongoing substitution towards nickel in pig iron in China (at the expense of cathode) and an acceleration in western world mine supply.
With a host of new mines expected to come on line in the next few years, the increase in nickel supply from 2010 onwards could be quite spectacular, Jansen said.
We now anticipate that the nickel supply/demand balance will be a significant surplus for 2008 into 2010 at least, and quite possibly for a year or two afterwards, he concluded.
In company news, the Indonesian unit of Rio Tinto has sued a regional government in Central Sulawesi for issuing a mining permit to local firms while it is still negotiating with the government over the area.
Rio is in negotiation with central and regional governments to obtain a permit to exploit the La Sampala nickel deposit in Central Sulawesi.
And Nautilus Minerals has started a new collaborative exploration program in association with the Australian National University and Teck Cominco, to search for new seafloor massive sulphide systems in the waters off Tonga.
That's what's happening ... see you tomorrow!
NEWS YOU CAN USE
Bluerock Resources Ltd. is a rapidly growing uranium exploration Company focused on uranium production in the US southwest within the framework of its toll milling agreement with Denison Mines (USA) White Mesa Uranium Mill.
The Company currently has one operating uranium mine, the J-Bird Uranium Mine, and three additional Colorado Uranium Projects fast-tracked towards production. Bluerock expects to see the J-Bird Uranium Mine stockpiling uranium ore for shipment to White Mesa by the end of the first quarter of 2008. Bluerock is strategically positioned to become the next uranium producer in the Americas.
The Company continues to work to add historic uranium resources, near term production operations and to define additional uranium resources through drilling and acquisition. The Pine Ridge Uranium Mine, with a non-N.I. 43-101 compliant resource of 540,000 lbs U3O8 is currently in a due diligence phase towards adding to the Company's near term production resource base.
The toll milling agreement Bluerock has signed with Denison Mines' (USA) White Mesa Uranium Mill allows Bluerock to ship up to 60,000 tons of uranium ore in 2008 and 100,000 tons of ore in 2009 and 2010. The agreement may be extended for an additional two years by mutual consent. The Company is adding scalability to the toll milling allotment through the development of a Bluerock stand-alone mill complex in Utah with details to be release in Q2 2008.
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