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Precious Metals

Gold dipped below $970 in late Hong Kong trading on Tuesday, but that was the low for the day, as prices rose sharply to the New York open, then settled into a trading range between $980 and $985, before finishing at $981.10/oz., up $6.50. Overnight, gold is unchanged.

Platinum bottomed below $1210 late in far East trading, moved slowly higher to mid-morning, then really took off and hung onto its gains, ending at its intraday high of $1239, up $30. Overnight, platinum is trending higher.

Silver also hit its nadir in Hong Kong, at $15.45, then was off like a shot, soaring to $16 in the late morning, sold off until just past the noon hour, but then caught a second wind that carried it back over most of the lost ground as it closed at $15.96, up 37 cents. Overnight, silver has edged higher.

A banner day for platinum and silver, but only a modestly higher one for gold, which was probably disappointing since the dollar continued to fall, oil erased nearly all of its early losses, and the equities rally stalled out. The two silvery metals undoubtedly continued to benefit from their dual natures, with some looking at investment potential and others dreaming of an industrial pickup.

Gold traders are caught on a seesaw between the metal's declining status as a safe haven if the economy really does improve, and the inflation that that improvement will likely drag in its wake.

The week is likely to be dominated by further developments on the currency market, with the rally possibly slowing down if the dollar holds above 79-78.5 as tracked by the U.S. Dollar index, wrote Andrey Kryuchenkov, an analyst at VTB Capital in London. The index fell as low as 78.393 yesterday.

In a technician's view, gold is now testing $988 resistance, wrote Andrew Chaveriat, of BNP Paribas in New York. If broken, next resistance is at $1,006.

The wild card here could be geopolitical tensions, with North Korea at the head of the list. Pyongyang is clearly testing the young American president, to see how he responds to increasingly bellicose actions.

And those who placed bets that the gold/silver ratio had risen too far have been well rewarded. An ounce of gold now buys about 61.5 ounces of silver, the lowest ratio since September. That compares with almost 84.4 in October, the highest since March 1995. That reflects their respective spot price performances, with gold up 11% so far this year vs. 37% for silver.

Currencies and Economic News

In the currency market, the dollar prolonged its slide by plummeting against the euro. Late Tuesday, the euro was trading at $1.4323 vs. $1.417 on Monday.

Fund managers continue the search for yield away from dollar-denominated cash onto equities, including [U.S. ones], but especially in emerging markets, said Ashraf Laidi, of CMC Markets.

The latest green shoot poked above ground in the form of a report from the National Association of Realtors that said pending sales of existing homes rose for the third month in a row in April.

The pending home sales index for April rose 6.7%, the NAR said. That followed a 3.2% increase in March, was the third monthly increase in a row, and was 3.2% above April 2008.

This is yet another positive indication that the bottoming process is forming in home sales, wrote Jennifer Lee, an economist for BMO Capital Markets. She added, rather wistfully it seems, Now if only prices would stabilize...

Other analysts question whether we're seeing a trend, or merely the response to low mortgage rates, special incentives for first-time buyers, and a measure of bottom fishing.

Lawrence Yun, chief economist for the NAR, expects existing-home sales to rise about 17% by the end of the year, even as sales of new homes fall another 12%. Since first-time buyers must finalize their purchase by Nov. 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers, Yun wrote.


In the energy market on Tuesday, crude for July delivery was nearly unchanged, closing at $68.55/barrel, down 3 cents. July reformulated gasoline rose a half-cent, to $1.93/gallon.

Crude had fallen as low as $66.48 early in the day, before the housing data sparked hopes of an economic recovery and a rebound in energy demand.

Oil is reacting to the bullish fundamental outlook of a weak dollar against the backdrop of an improving economic outlook, said Phil Flynn, of Alaron Trading.

But there remains a lot of uncertainty. Everyone is wondering whether the across-the-board rallies are for real or not, and whether prices have already over-discounted the modest signs of recovery we see cropping up, wrote Edward Meir, of MF Global.

For the moment, we think there is still too much buy-side momentum to call a top in any of these markets, be it energy, U.S. equities, or base metals, Meir added. He said charts suggest that of the three, oil is the most overbought, likely making it the first to yield to selling pressure, and possibly dragging the other sectors down with it.

And Charles Perry, president of Perry Management, said that while dollar weakness is the major force for oil, reduced inventories are a close second. We'll have a better look at them after the EIA's weekly stockpile report, due out later this morning.

Base Metals

The base metals were modestly lower on Tuesday. Copper pushed above $2.32 in the pre-dawn hours, but sold off from there to the New York open, then traded flat through the day, finishing at $2.2664/lb., down nearly 2 cents. Nickel traded tightly rangebound between $6.45 and $6.60, closing at $6.5468/lb., down less than a penny. Zinc also fell sharply from its pre-dawn highs, ending at $0.6976/lb., down a penny and a third. Aluminum drifted lower, dropping just under a penny, to $0.6486/lb., while lead held up well, shedding less than a quarter-cent, to $0.7458/lb.

Nothing goes in a straight line for long, and yesterday copper led the industrial metals through an overdue cooling-off day, amid widespread speculation that they may have gotten ahead of themselves.

Along with simple profit-taking, of course. Copper has now surged 63% this year, despite slack demand.

Alex Heath, the head of industrial metals trading at RBC Capital Markets in London, caught the mood when he said, The upward move in prices during the last few days has been phenomenal ... People question the speed of the recovery.

Whether it's the beginning of a major pullback or merely some consolidation remains to be seen, but the green shoots, such as yesterday's housing data, are providing support at these levels. People are really getting excited by this idea that the worst is over, said Frank McGhee, of Integrated Brokerage Services in Chicago.

Stockpile data resumed their sharp downward trend yesterday. Copper inventories monitored by the LME fell by 2,750 metric tons, to 308,225 tons.

A note of caution was injected by Eugen Weinberg an analyst at Commerzbank in Frankfurt, who wrote that, The price hike has predominantly been driven by China's reserve purchases and hopes of an imminent economic turnaround. But with continuing weak real demand, he warned that there could be a massive correction of copper prices soon.

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

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