Good morning ...
Gold, which was up a bit in the far East, plummeted from $910 to $889 once London opened, but from there it forged higher through the New York trading day, to finish at $899.90/oz., down $4.40. Overnight, gold has continued to decline.
Platinum also tried to recover its European losses during the New York day, but fared less well than gold, ending at $2069/oz., down $46. Overnight, platinum is sharply lower.
Silver tracked gold very closely, but staged a more impressive rally in New York that carried it nearly back into the black for a close at $17.41/oz., down a penny. Overnight, silver has fallen further.
A pretty lackluster day for the precious metals, especially considering that rising oil prices were there for support. But traders obviously felt that a modest advance for the dollar was of greater importance.
That the metals also came well off their lows was also encouraging, but the relationship between gold and crude continues to be double-edged as oil acts both to support the gold price and to cap it.
As Kitco's Jon Nadler wrote: Gold remains on the defensive for the moment, as it is lacking core fabrication demand and more attention from investors ... The latter continue to be attracted to oil like insects on a May evening.
Nevertheless, that is a reversible phenomenon, according to Mark O'Byrne, of Gold and Silver Investments Ltd.
O'Byrne writes that gold is likely to outperform oil in the medium to long term ... Strong physical demand internationally is likely to cushion the sell-off and result in gold finding strong support again between $850 and $870.
But Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois, makes the pessimists' case, saying that inflationary expectations are too high and the Fed can't live with this. Interest rates are going to be rising and everyone will get out of commodities.
Whether gold must fall with rising interest rates remains to be seen, but futures traders are increasingly betting on that rise, with the market showing a 43% chance the Fed will raise borrowing costs to 2.25% by December 16, compared with a 38% chance a week ago.
Currencies and Economic News
In the currency market, the dollar firmed for a second day against the euro. Late Wednesday, the euro was trading at $1.564 vs. $1.5696 on Tuesday.
Dollar traders were buoyed by economic news that-what else?-was not as bad as it might have been.
The Commerce Department reported that new orders for U.S.-made durable goods fell only 0.5% in April. While a second straight monthly decline in durables is not particularly good, that number was well below the 2.8% drop projected by economists.
And it had some analysts beaming.
This was a decent report and seems to indicate that the economy has far from collapsed...there is a real chance we escape with maybe only one negative quarter of growth, said Joel Naroff, president of Naroff Economic Advisors.
But others were less sanguine and urged a wait-and-see approach since durable goods orders are down 3.4% year-over-year, and the hit from higher oil prices is mostly yet to be felt. We expect a much weaker report in May, commented Ian Shepherdson, of High Frequency Economics.
In the energy market Wednesday, crude for July delivery rose after Tuesday's knockdown, closing at $131.03/barrel, up $2.18. July reformulated gasoline gained 6.78 cents, to $3.4476/gallon.
Tough talk and empty promises from Congress one day, and supply information from the Saudis another, can get a day's relief here or there from the continued escalation of prices, wrote Neal Ryan, of Ryan Oil & Gas Partners.
But ultimately, prices are going to be a reflection of the supply/demand data at hand, Ryan said.
And people are not happy about it. The expressions of protest demonstrate how difficult social dislocation, resulting from higher fuel costs, will be, wrote Michael Fitzpatrick of MF Global. For the moment, though, we still feel prices look vulnerable to $120.
Fitzpatrick argued that, on the other hand, it has taken five years to get here; conditions will not and did not change overnight.
Traders are looking toward the Energy Information Administration's weekly inventory report, delayed until today by the Memorial Day holiday.
The consensus is for crude stocks to have climbed by 750,000 barrels for the week ended May 23. But as always, surprises to the up or downside could shake the market.
The base metals were all mired in the red again on Wednesday. Copper nosedived from the pre-dawn hours to the open of the New York session, bottoming at $3.69 before cutting about half its losses to finish at $3.7464/lb., down 5 1/3 cents. Nickel sank steadily through most of the day, closing at $10.2315/lb., down almost 47 cents. Zinc hit the skids, just coming off its lows in the late morning to end at $0.9475/lb., down nearly a penny and three-quarters. Aluminum also halved its losses, winding up at $1.3221/lb., down more than a penny and three-quarters, while lead was down modestly, dropping a half-penny to $0.907/lb.
Copper slid following announcement of a steep rise in stockpiles, taken as a potential signal that demand may be waning. Inventories monitored by the LME were up by 1,400 metric tons yesterday, to 125,800 tons. That marked the highest level since March 13.
But are we entering a full-bore correction?
Metals analyst William Adams, of Basemetals.com, isn't quick to jump to that conclusion. In the absence of fresh supply disruptions in the base metals, the path of least resistance seems to have been to the downside recently, however dips have remained well supported as bargain hunters have stepped in to take advantage of these lower price levels, he said.
In the short term, however, There is nothing out there to be really bullish about, said Adam Rowley of Macquarie Bank. Nickel was looking like it might tighten up a bit, but the stainless steel production cuts that have been announced in China have really put a lid on that, Rowley added.
And Mining Journal Online reported that, Low refined nickel prices and stricter government enforcement of environmental standards have cut into profits for Chinese nickel pig iron producers, forcing some to suspend production.
In company news, the day after Rio Tinto announced it was suing the Indonesian government over the issuance of mining permits to local firms, Rio said that the Sulawesi project at the center of its efforts in the country is a tier-one opportunity.
Rio Tinto Copper CEO Bret Clayton called the 162-million tonne Sulawesi nickel deposit a substantial resource that will provide an attractive entry for Rio Tinto into a new metal. Clayton added that in ten years' time, Rio Tinto could rank among the top ten nickel producers globally.
That's what's happening ... see you tomorrow!
NEWS YOU CAN USE
Consolidated Abaddon Resources Inc. is a Canadian uranium exploration company developing properties in the Athabasca Basin of Northern Saskatchewan and the Sims Basin of Labrador. Property partners include Denison Mines Corp. and Triex Minerals Corp.
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