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Precious Metals

Gold dipped in Hong Kong but was little changed when New York opened on Thursday, but it took off from there, rising as high as $965 just before the noon hour, then eased through the rest of the Comex and the Globex to finish at $959.00/oz., up $10.70. Overnight, gold is sharply higher.

Platinum sank to as low as $1123 at the close in Hong Kong, but rose through the New York day, bouncing off of $1145 several times before slipping a bit to end at $1139, up $6. Overnight, platinum is trending higher.

Silver was down in early Hong Kong trading, falling to near $14.60, but it was all up from there as it blasted to a high of $15.25 near noon, then held most of its gains through the rest of the day, closing at $15.15, up 40 cents. Overnight, silver is strongly higher.

It was a gangbuster day for the precious metals, particularly silver, as the usual suspects provided some support for a change, with oil pushing higher and the dollar sliding against the euro.

The Hightower Report wrote: “The gold market showed early weakness and actually managed a quasi new low for the move before prices reversed and at least temporarily reached the highest level since March 20th. Clearly seeing a failed rally attempt in the Dollar provided the bull camp with some confidence but some traders suggested that reflation action was potentially behind some of the gains in gold today. With crude oil prices managing another new high for the move and the Dollar unable to sustain an early upside attempt, it is possible that gold was seeing support from a number of different angles. With the upside breakout in gold prices on the charts it is also possible that gold was seeing some technically related buying interest.”

And silver likely benefited from its dual nature.

“The $15 level is a break-out area for silver,” said George Gero, of RBC Capital Markets. “Silver is not a pure precious metal. It's also an industrial. So what helps silver is the fact that there could be a recovery.”

Long term, of course, rising inflation will be a strong gold driver. But even near term the future is bright, according to Michael Lewis, head of commodities research at Deutsche Bank.

“The interest rate, exchange rate and equity environment still remains quite constructive for gold, particularly in the short term,” Lewis says. “We may see a bit more dollar weakness, and the appeal of gold will continue for inflation-hedging.”

Currencies and Economic News

In the currency market, the dollar slipped against the euro. Late Thursday, the euro was trading at $1.3923 vs. $1.3908 on Wednesday.

There was a wealth of data, albeit inconclusive, to pick through yesterday. Leading off, the Commerce Department reported that new single-family home sales advanced in April for the second time this year. Sales increased 0.3% from March, to an annual pace of 352,000 houses, a weaker showing that economists expected.

Next, the Labor Department said initial jobless claims fell by 13,000, to 623,000, in the week ended May 23, from a revised 636,000 the prior week. That was a lower number than forecast, and it led Mickey Levy, chief economist at Bank of America in New York, to comment that, “The pace of job declines is lessening … This along with some other indicators points to a trough in the recession.”

Finally, the Commerce Department reported a 1.9% increase in durable goods orders for April, the biggest jump since December 2007. It followed a revised 2.1% drop in March that was more than twice as large as previously estimated. Orders, however, remain stuck near a 13-year low.

While the contraction may be slowing, there are few signs of nascent growth. “We have a tough slog ahead of us,” said Carl Riccadonna, a senior economist at Deutsche Bank Securities in New York. “The recovery is going to be very slow in its emergence.”

The euro got a boost as the European Commission's gauge of economic sentiment across the eurozone posted a stronger-than-expected rise in May, to 69.3 from 67.2 in April. That was slightly above forecasts, and marked the second consecutive monthly rise for the index, although from historically low levels.

Energy

In the energy market on Thursday, crude for July delivery continued to climb, closing at $65.08/barrel, up $1.63. June reformulated gasoline rose 1.88 cents, to $1.9105/gallon.

In its weekly inventory report the Energy Information Administration said that crude stocks declined by 5.4 million barrels in the week ended May 22, wildly divergent from Platts’s expectations for an increase of 1.8 million barrels.

Gasoline supplies dropped by 600,000 barrels, while distillates rose 300,000. Refineries were operating at 85.1% of their operable capacity last week, up sharply from 81.8% in the prior week.

“In the coming weeks, I look for crude stocks to continue to decline as refiners ramp up for summer,” said James Williams, of WTRG Economics.

Meanwhile, at its meeting in Vienna, OPEC chose to leave production quotas unchanged, with Saudi Arabian Oil Minister Ali al-Naimi saying output targets were unchanged because “prices are good, the market is in good shape.” Oil should stay in a $60 to $70 range for the rest of the year, OPEC Secretary General Abdalla el-Badri said.

“The outcome, no change in OPEC quotas, was expected, but the surprise was Saudi Arabia being very explicit about a price objective for the first time since the price band mechanism in the early part of this decade,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase in New York.

Base Metals

The base metals were all luxuriating in positive territory on Thursday. Copper pushed steadily higher from the early pre-dawn hours straight through the day, finishing just off its intraday highs at $2.129/lb., up 5 1/3 cents. Nickel followed copper to a T, busting back over the $6 mark and closing right at its intraday high of $6.1182/lb., up more than 20 cents. Zinc had some ups and downs but managed to slough off its early weakness and end at $0.6581/lb., up more than a penny. Aluminum was modestly higher, adding just under a half-cent, to $0.624/lb., while lead completed a strong day, tacking on over a penny and three-quarters, to $0.6687/lb.

Copper led the industrials higher, as traders grasped at the latest positive straw, the durable goods report, as evidence that the economy is brightening.

“The report this morning was pretty good for the economic outlook,” said Michael K. Smith, of T&K Futures & Options in Port St. Lucie, Florida. But he might have been thinking of the desperation of the environment when he added, “The market is looking for a potential bottom in the economy and all you need is a little bit of good news to send copper higher.”

The base metals also got a boost from the rally in equities and the weakening dollar, and there was some “spill-over support from stronger precious metals complex,” said John Gross, publisher of the Copper Journal.

And stockpile data provided the support to which the market is becoming accustomed. Copper inventories monitored by the LME declined 2,150 metric tons yesterday, to 317,125 tons. That’s the lowest level since last December 15.

But China is a bit murky. Continued Chinese buying would support copper prices, said Charles Kernot, of Evolution Securities in London. China increased imports of copper and aluminum to a record in April.

However, Lili Shi, an independent Chinese scrap metal consultant, warned that, “High levels of Chinese copper scrap imports not a sign of healthy consumption and might present risks if global demand continues to be hit by the financial crisis.”

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


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