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Precious Metals

Gold bottomed at $883 just after the open of London trading on Monday, moved higher in fits and starts until noon, then sagged from there through the Globex, finishing at $890.30/oz., up $4.20 from Friday. Overnight, gold has been trending higher.

For the second straight day, platinum was little changed, sinking in Europe, rallying in New York, then easing later in the day, ending at $2007/oz., up $1. Overnight, platinum has edged higher.

Silver was sharply higher in early London trading, peaking at $17, then fell all the way to $16.57 in New York's second hour, before retaking some of the lost ground to close at $16.79/oz., down 8 cents. Overnight, silver is slightly higher.

It was a nice day for gold, although platinum and silver failed to follow suit. Gold did especially well to hold on in light of the early strength in the dollar, although there was probably some disappointment that it didn't do a better job of hanging near the $900 level when the buck weakened later in the day.

The weakness in the equity markets probably lent some flight-to-quality support.

Analysts Peter Spina took a look at the usual suspects, oil and the dollar, and didn't find anything likely to cause a major price swing.

The oil price has pulled back from above $130 and the U.S. dollar has recovered just over 1% [vs. the euro], Spina wrote. But these moves are not sufficient to cause major moves in gold, so the churning will continue until there is good cause to move strongly, one way or the other.

Gold's price is currently dependent on investment demand to make it run up this season and that demand is presently quiet, he added.

However, Kitco's Jon Nadler noted that gold found some old friends in Asia over the weekend -- buying of the metal by jewelry fabricators became noticeable, finally.

Chart watchers said that the 14-day relative strength index for gold futures last week dropped to 42, a signal that prices may be poised to climb.

Physical buyers are coming back into the market, said Matthew Zeman, a metals trader at LaSalle Futures Group in Chicago. People are thinking it's better to buy now at these discounted levels, than wait as it moves higher and have to buy at full price.

Hmmm. . . Wonder what 'full price' might be?

Currencies and Economic News

In the currency market, the dollar eked out a slight gain against the euro. Late Monday, the euro was trading at $1.5536 vs. $1.5549 on Friday.

The buck did receive a brief morning boost after U.S. manufacturing data came in better than expected. The Institute for Supply Management's index for May improved to 49.6% from 48.6% in April. Although anything below 50% is negative, that number was above the 48.7% predicted by economists.

But, Dollar gains were short lived following the U.S. data, wrote currency analysts at Action Economics. Overall, it appears the dollar's downside has again quickly taken the spotlight, though dealers largely do not foresee significant losses from here on Monday.

Looking ahead, Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, wrote that, The continuation of the U.S. dollar's rally this week will depend in part on sentiment, with crude oil and equity prices important barometers.

And Fed watchers noted that Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in a speech yesterday that, Although conditions have improved on some fronts, I don't feel we can yet 'breathe easy'.

I would characterize the current position of the overall economy as growing slowly, poised for gradual recovery, but carrying real risks that could subvert the story, Lockhart said.


In the energy market Monday, crude for July delivery inched higher, closing at $127.76/barrel, up 41 cents. July reformulated gasoline opened as front-month contract by adding 4 cents to $3.39/gallon.

Traders were wary as they watched Arthur, the first Atlantic storm of the season, churn across the Gulf of Mexico without reaching hurricane status or impacting oil installations.

Charles Perry, president of Perry Management, said there is some conservatism in the market right now as crude has been unable to bounce back to the $130 level, with the feeling that we have not seen all the drop yet in the oil price.

But it's possible that this week will be quite volatile, Perry said. All traders are looking for signs to indicate which way the price is going.

Perry said there was a giant profit taking last week, as trading volume shot up, accelerating to about 45 million contracts on Friday. So today, the traders are establishing a new position at a lower price.

Base Metals

The base metals were mixed on Monday. Copper was off in the pre-dawn hours but rallied back during the New York session yesterday, to finish little changed at $3.6665/lb., down just over a tenth of a cent. Nickel pushed back over the $10 mark in the pre-dawn hours but couldn't hold there as it slumped steeply before rallying back to close at $9.9012/lb., up 6 cents. Zinc was off for most of the day, ending slightly above its intraday low at $0.8844/lb., down almost 2 cents. Aluminum was tightly rangebound, finally shedding half a cent, to $1.3064/lb., while lead had a very sharp mid-morning rally and wound up tacking on a penny and a third, to $0.9005/lb.

It was kind of a nothing day for the industrial metals, with none of them making a strong move in either direction.

Copper held up well, bouncing back after touching a ten-week low early in the morning hours.

There are still a lot of bulls in the market, said analyst Daniel Hynes at Merrill Lynch. So we get this bout of buying after what some may see as excessive sell-off, but I don't think it has to be sparked by particular macro economic data.

Marc Elliott, analyst at investment bank Fairfax, sees little hope for any sustained rally, though. Barring any supply-side event such as a strike or severe production disruptions, I see the market as steady towards the downside this week, as we're moving towards the seasonal slowdown in China, Elliott said.

Supply doesn't seem to be a problem at the moment. Inventories monitored by the LME did fall by 1,000 metric tons, to 123,950 tons, yesterday. But that still leaves them more than 10% above their level at the beginning of May.

Aluminum stocks are also very healthy, at more than 1,070,000 metric tons, putting them about 60% above where they were at the beginning of the year. But there may be output problems looming.

Chinese officials said yesterday that the country is facing worse than usual power shortages over the next few months as earthquake-hit Sichuan may need to import electricity. Power is more of an issue for energy-intensive aluminum production than for any other metal.

What happens in China is crucial, Lehman Brothers analysts wrote in a recent note, predicting that Chinese demand could grow by an average of 13% annually until 2020, supporting prices. We believe that China will remain an important price driver in the coming years, they wrote.

That's what's happening ... see you tomorrow!


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