Good morning …

Precious Metals

Gold closed the month of May in resoundingly positive fashion yesterday, rising steadily from the far East to late morning in New York, then leveling off and holding its gains through the rest of the day to finish at $979.60/oz., up $20.60. For the week, gold was up 2.4%.

Platinum was also strong, peaking late in Comex trading, then easing off a little on the Globex to end at $1188, up $49. For the week, platinum added 3%.

And silver completed the trifecta, posting a stellar day in which it moved relentlessly higher with few retracements, and closed at $15.79, up 64 cents. For the week, silver gained a robust 7%.

Month’s end yielded a second gangbuster day in a row for the precious metals, as all three were well into the green, with the declining dollar providing strong support and rising oil chipping in.

Gold rose to a 3-month high and silver, which has been on fire, closed the “sell-in-May-and-go-away” month by posting a gain of 27%, its biggest rise since April of 1987. Gold’s 10% advance was its best monthly showing since November.

Since silver is an industrial, as well as an investment metal, “What you may now be seeing is people think we are moving toward a recovery, and maybe we should be less pessimistic about the future of the metal, that may be factoring in the prices,” said Jeffery Christian, managing director of the CPM Group.

In addition, Christian pointed out, silver fell a lot more than gold in the second half of 2008, so it “is playing catch-up to some extent.”

Further comparing gold and silver, Christian added that, “The gold market is more participated, involved more money, and more liquid, and it tends to see lower volatility … In silver, you have few people with less money. It's a much more illiquid market and prices are always more volatile than gold.”

And platinum fully participated in the rally, rising to its six-week high, again because of perceived signs that the global economic crisis may be easing.

“Indications from the physical platinum market, and flows and implied stocks, suggest the platinum supply-demand balance is in good shape,” wrote John Reade, UBS AG’s head metals analyst in London. “If the worst global recession since 1945 can only take the platinum market back to balance, surely this has to be pretty bullish for the long term.”

Currencies and Economic News

In the currency market, the dollar prolonged its slide against the euro. Late Friday, the euro was trading at $1.4126 vs. $1.3923 on Thursday.

With traders exuding more confidence that the worst is past, the buck fell sharply in May before seeming to find its footing earlier this past week. But it still wound up losing 6% during the month, the worst showing since December.

There were plenty of numbers to sort through yesterday. The Reuters/University of Michigan consumer sentiment index increased to 68.7 in May, from 65.1 in April. That was a bit higher than economists’ expectations.

However, the Institute for Supply Management-Chicago said its business barometer plunged to 34.9 in May, from 40.1 in April. Readings below 50 indicate contraction.

The Commerce Department said the U.S. economy shrank at a 5.7% annual pace in the 1Q09, capping its worst six-month performance in five decades. While that was a slight improvement on last month’s 6.1% estimate, it was bad enough, coming on the heels of a 6.3% plunge in 4Q08.

“The decline in GDP will be much smaller in the second quarter and will move to positive in the third quarter” based on company inventories, predicted David Resler, of Nomura Securities International in New York. But he added sourly that, “What we’ll see thereafter is not going to be particularly exciting.”

Energy

In the energy market on Friday, crude for July delivery continued to climb, closing at $66.20/barrel, up $1.12. June reformulated gasoline rose 2 cents, to $1.93/gallon.

“Oil market participants' conclusion that the worst of the recession has passed and that a recovery in demand must be at hand was bolstered overnight by higher than expected first-quarter growth in India and a sharp jump in Japan's April industrial production,” said John Kilduff, of MF Global.

OPEC released a statement after its Thursday meeting, which said in part: “The severe and broad impact of the ongoing global economic downturn, precipitated by the financial crisis, has led to a weakness in global oil demand, which is likely to remain for some time.”

Analysts at Commerzbank wrote that “the current oil price movements should not be taken for granted and be viewed as a one-way street … The oil price faces downside risk insofar, as hopes of a demand recovery could potentially be disappointed and OPEC member states may decide unilaterally to expand their production due to higher oil prices,” and they said they expect oil prices will reach $70 by the end of 2009.

In the natgas arena, natural gas rose sharply over the course of the week, to $4.505 per million British thermal units. Submitting a strong week for a change, natgas tacked on a solid 15%.

Base Metals

The base metals were all basking in the green again on Friday. Copper had another strong day, pushing steadily higher from the pre-dawn hours to the noon hour, after which it came off a little to finish at $2.1688/lb., up 4 cents. Nickel was choppier but had an upward bias, closing just off its intraday high at $6.2271/lb., up nearly 11 cents. Zinc followed copper’s path closely, ending at $0.6828/lb., up 2 1/2 cents. Aluminum moved ahead, tacking on more than a penny, to $0.6353/lb., while lead made a powerful move, adding 3 2/3 cents, to $0.705/lb.

Copper led the industrials higher for a second day in a row, and ended May with its fifth straight monthly gain, as traders rode the declining dollar and those elusive green shoots northward.

Copper is now up 56% on the year, as commodities in general have done well. The Reuters/Jefferies CRB Index of 19 commodity futures posted a 12% gain in May, the biggest monthly leap since July 1974.

“Investors are eager to jump back into the market on signs of bullishness for commodities and the economy,” said Michael Gross, of OptionSellers.com in Tampa, Florida. “The dollar’s rapid collapse is really adding fuel to the fire.”

In addition to the weakening buck, “Recent positive economic data from Asia … are supporting prices,” said Eugen Weinberg, of Commerzbank AG in Frankfurt. “Stronger economic data imply better demand for commodities, especially cyclical ones like base metals.”

Bolstering that view, Japan’s industrial output rose 5.2% in April, the most in 56 years, while India’s economy, Asia’s third-biggest, grew 5.8% in the first quarter.

And stockpile data continued to be their helpful selves, with copper inventories monitored by the LME declining 4,850 metric tons yesterday, to 312,275 tons.

That’s what’s happening … have a great weekend and see you Tuesday!


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