Good morning …

Precious Metals

Gold was down from the far East to just before the New York open on Wednesday, bottoming at $948, but moved sharply higher to the noon hour, reaching $959 before falling steeply again into the Globex and leveling off just in the red to finish at $948.30/oz., down $3.80. Overnight, gold has edged higher.

Platinum spent nearly the whole day rangebound between $1130 and $1140, before ending near the low end at $1133, unchanged. Overnight, platinum is slightly lower.

Silver noodled around the $14.50 mark from Hong Kong to the New York open, then followed gold strongly higher but outdid its sister metal, adding 50 cents to nudge the $15 mark before subsiding and coasting to a close at $14.75, up 14 cents. Overnight, silver is trending higher.

The precious metals were quite a mixed bag yesterday, with gold finishing lower, platinum flat, and silver solidly in the green. Again, the dollar was the primary driver among the usual suspects, with its strength undercutting gold’s appeal.

But the downtrend was likely tempered a bit by rising oil prices.

Kitco’s Jon Nadler, who tends toward the negative, stated flatly that, “The market is overbought,” then asked, “Where are the jitters? North Korea did not do the trick … Add it all up, and we see profit-taking as imminent.”

But in an interview from Hong Kong, noted market analyst Marc Faber went way out on a limb and said he sees the U.S. entering a “hyperinflation” that will be “close to” Zimbabwe.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Faber added that, “I don’t think that gold will run up right away. I never sold gold and I’m still buying gold … [because it] has been an adequate hedge against inflation … If you bought it in 1980 at the price of $850, then it hasn’t been a good hedge against inflation, but if you bought it in 1999 at $251, then it has done very well.”

Inflation? No way, Nadler says. He might as well have been responding to Faber when he said: “Where is inflation? A speck on the horizon.”

Nevertheless, the funds continue to pile into metal. Hedge funds and other large speculators increased their net-long position in New York gold futures last week, by 7.7% over the previous week, according to CFTC data.

Currencies and Economic News

In the currency market, the dollar rose against the euro for the second straight day. Late Wednesday, the euro was trading at $1.3908 vs. $1.3984 on Tuesday.

Analysts said that mixed housing data and worries that rising interest rates might limit an economic recovery were responsible for moves into the perceived safe haven. “The U.S. dollar is still the reserve currency of the world and there is still a great deal of demand,” said Dan Cook, of IG Markets, Inc.

The day’s big number was from the National Association of Realtors, which said sales of existing homes rose 2.9% in April, in line with economists’ expectations. Sales have been nearly unchanged for six months.

How meaningful that is, is an open question. The stats show first-time buyers accounting for about 40% of sales in April, as the federal government offers them $8,000 to use for a down payment. In addition, another 45% were distressed sales of one kind or another. “This is a non-regular market,” said NAR’s chief economist, Lawrence Yun.

Further, inventories of unsold homes on the market rose 8.8% in April to 3.97 million, representing 10.2 months of sales, the highest level since November. And the median sales price fell 15.4% over the past year, the second largest year-over-year percentage decline on record.

The buck also got a boost after Erkki Liikanen, a member of the ECB's Governing Council, said that the European Central Bank's current key lending rate of 1% -- an all-time low -- is appropriate for the current economic situation, but that room remains to lower the rate further if needed.

Energy

In the energy market on Wednesday, crude for July delivery advanced, closing at $63.45/barrel, up an even $1.00. June reformulated gasoline rose 3.39 cents, to $1.8917/gallon.

The recent price is a function of optimism over early signs of global economic recovery, Saudi Arabia Oil Minister Ali Naimi said yesterday. The Energy Information Administration recently predicted that oil will rise to $110/barrel by 2015 and $130 by 2030.

“The big picture is looking more and more bullish each day,” said Phil Flynn, of Alaron Trading. “The truth is that oil is looking at the big picture and is getting more and more concerned at the prospects of inflation and the plunging investment in oil infrastructure.”

Global investment in oil and gas projects is expected to slump 21% this year from a year ago, falling for the first time in a decade, the IEA predicted. More than 50 major oil and natural-gas projects around the world have been canceled or delayed by at least 18 months since October, the agency said.

Today could be interesting, as we have both the OPEC meeting in Vienna underway, and the Energy Information Administration will be releasing its weekly inventory figures, delayed a day by the holiday.

Base Metals

The base metals were nearly all in the red on Wednesday. Copper held up until the noon hour, but fell off steeply after that, finishing at its intraday low of $2.0752/lb., down more than 3 3/4 cents. Nickel peaked over $6.20 during the pre-dawn hours, but it was all downhill from there, as it sank back below the $6 mark to close at its intraday low of $5.9164/lb., down 11 cents. Zinc was also up in the pre-dawn hours and cratered through the day to end at $0.647/lb., down two cents. Aluminum was very weak, giving up 2 1/4 cents, to $0.6199/lb., while lead bucked the trend, adding three-quarters of a cent, to $0.6505/lb.

Copper led most of the industrials lower, surrendering overnight gains and retreating from a 2 1/2-week peak as the dollar strengthened again, leading to a general commodities selloff.

“There’s a lot more chatter about the dollar right now and it’s definitely becoming something more people are paying attention to,” said Matthew Zeman, of LaSalle Futures Group in Chicago. “It’s keeping a damper on prices.”

In addition, copper somewhat tracked equities lower after the mixed existing home sales data failed to provide any upward impetus.

“The [housing] supply number rose and I think people were hoping that number would drop by a small amount, and that's kind of keeping copper a little heavy here,” said Sterling Smith, of FuturesOne in Chicago.

While stockpile data was supportive—copper inventories monitored by the LME were off by 7,300 metric tons yesterday, to 319,275 tons—traders responded more to a decline in canceled warrants, the metal tabbed for delivery, which have fallen to 43,375 metric tons from this year’s high of 84,000 tons on April 30.

In company news, Teck Resources, Canada’s biggest base-metals company, is still trying to right its listing ship, now engaging in talks to sell coking-coal assets to Chinese companies.

Teck is seeking help to pay down $9.8 billion in debt incurred last year to buy Fording Canadian Coal Trust. Teck made the deal at the worst possible time, right before metals and energy prices plunged as the global recession spread.

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


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