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Precious Metals

After bottoming at $870 at the open of London trading yesterday, gold finally decided it was time to add some value, and it moved slowly but steadily higher from there to the close of the NYMEX, after which it leveled off and cruised into a finish at $886.10/oz., up $8.80. For the week, gold gave up 4.1%.

Platinum rose in Europe, but then traded dead flat through the whole New York day, ending at $2006/oz., up $7. For the week, platinum shed 7.6%.

Like gold, silver bottomed at the London open and rallied through the NYMEX, then traded flat to close at $16.87/oz., up 27 cents. For the week, silver plunged 7.3%.

It was a bit of a relief for the precious metals fanciers, as the objects of their affection ended a dismal week on an up note.

The metals got a boost from the usual suspects, albeit a small one, as the euro inched higher against the dollar and oil rebounded to claw its way higher.

Some analysts were attributing Friday's gold action to a technical bounce, but others were of the mind that that the improved macro economic outlook could have generated a bit of bottom fishing. The day's data, while mildly positive, was not good enough to send the dollar markedly higher and slam gold again.

However, the week's oil price volatility does leave some nagging questions to overhang the gold market heading into Monday's trading.

Noting that yes, there was a sharp sell off due to profit taking, dollar strength and oil weakness, Mark O'Byrne, of Gold and Silver Investments Ltd., went on to write that, these would seem to be short-term phenomena and the primary trends in oil and the dollar remain up and down, respectively, which should result in gold being well supported above $850 per ounce.

O'Byrne concluded by saying that, Inflation and stagflation are now stalking developed western economies and developing and emerging markets alike -- and this bodes well for gold in the long term as it was in the 1970s.

Meanwhile, silver remained in the lower segment of its May price range as copper, which it often follows, continues to struggle. Analysts remain concerned about the delicate balance engendered by the slowing economy.

On the one hand, the slowdown will keep a lid on the dollar, which is positive for all precious metals, but on the other, if the slump is too deep or prolonged, silver, as an industrial metal, will suffer.

Currencies and Economic News

In the currency market, the dollar sagged a bit against the euro. Late Friday, the euro was trading at $1.5549 vs. $1.5501 on Thursday.

The buck's performance was tempered by an announcement that German retail sales fell 1.7% in April, vs. consensus expectations for 1.4% growth. That curbed talk that the European Central Bank might raise interest rates, making it even more competitive with the dollar.

It also provided evidence that the slowdown already being felt in the southern European economies is beginning to make itself known in core countries.

Meanwhile, the dollar actually strengthened against the Canadian loonie after Canada reported the first quarterly decline in economic growth since the second quarter of 2003. March growth declined 0.2% from the previous month.

The renewed deterioration in GDP suggests that the Canadian economy is being more greatly impacted by the U.S. slowdown than earlier thought, wrote Michael Woolfolk, of the Bank of New York Mellon.

And the U.S. Commerce Department reported that nominal personal incomes, nominal consumer spending and consumer prices all increased 0.2% in April, suggesting the economy weakened further in the second quarter of the year, even as the first tax-rebate checks began arriving.


In the energy market Friday, crude for July delivery moved higher, closing at $127.35/barrel, up 73 cents. June reformulated gasoline added a penny in its last day as the front-month contract, to $3.41/gallon.

Michael Lynch, president of Strategic Energy & Economic Research, believes the long-term trend is down.

Certainly, a political disruption of oil supplies -- civil war in Nigeria, major fighting in southern Iraq, attacks on Caspian pipelines -- could occur and would send prices sharply higher, but overall there is a greater likelihood that prices will drop in the next few years, and perhaps sharply, Lynch wrote.

But John Person, president of National Futures Advisory Service, said he wouldn't be inclined to call a top until we close back under the $118 level, which was close to the high made last month.

All of which is of little concern to drivers, who watched as the retail price for a gallon of regular gasoline climbed to another record of $3.962 Friday, according to AAA's Daily Fuel Gauge Report. That's up 24.2% from a year ago.

Base Metals

The base metals were mostly in positive territory on Friday. Copper struggled mightily to turn in a positive day yesterday, rallying twice off of steep drops, and it eventually succeeded, finishing at $3.6679/lb., up 2 2/3 cents. Nickel didn't fare as well, sinking below the $10 mark and staying there to close at $9.8407/lb., down more than 17 cents. Zinc traded very choppily, ending at $0.9034/lb., up more than three-quarters of a cent. Aluminum pushed steadily higher through the day, adding better than 2 cents, to $1.3111/lb., while lead tacked on 2 1/2 cents, to $0.8877/lb.

With the exception of nickel, the base metals closed a rough week with some modest gains as traders returned their attention to potential supply shortfalls, and shoved demand considerations to the back burner for at least one day.

Was the selloff overdone, and is a rebound coming?

Copper's fundamentals this year are very supportive -- this is a market in deficit. We would expect to see any further drop from these levels as being short-lived, said Gayle Berry, metals analyst at Barclays Capital.

Berry added that, I would expect aluminum to remain really quite well supported ... Smelters in China do face further power hikes that will further raise their costs of production.

Copper also saw a drop in stockpiles. Inventories monitored by the LME fell by 1.450 metric tons (1.2%) yesterday, to 124,950 tons. In addition, the Shanghai Futures Exchange reported a decline of 44,554 tons in the past week, contrary to predictions that stocks would advance there.

Taking all this into account, Barclays Capital analysts wrote that, Our expectation for softness in copper prices has been realized and we view dips below $8,000 a ton as a buying opportunity given tightening concentrate supply. Copper was at $7912/ton yesterday.

Meanwhile lightly-traded tin, which has been the best metals performer of the past year, may have peaked. Open interest in tin futures, or contracts that have not been closed or liquidated, has slumped 12% in the past month, indicating that investors are finally pulling back after prices rose to an all-time high.

Tin is such a thin market that, when sentiment turned, there is no depth, said Stephen Briggs, an analyst at Societe Generale in London.

That's what's happening ... have a great weekend and see you Tuesday!


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