Good morning ...
Gold had a lackluster day, reaching only as high as $885 early in the New York session on Wednesday, then getting ground slowly down straight through the Globex to finish at $878.50/oz., down $2.80. Overnight, gold has been trending lower.
Platinum spent the day rangebound between $1980 and $2010, ending at $1991/oz., down $12. Overnight, platinum has slipped lower.
Silver dipped to $16.60 at mid-morning but then had a steeper rise than gold and held most of its gains through the Globex to close at $16.80/oz., up 3 cents. Overnight, silver has declined.
The precious metals market clearly had trouble making up its mind which direction to head in yesterday, and settled for only modest changes with the usual suspects splitting the difference as the dollar was static and oil sank for a second straight day.
Are we in for a prolonged period of indecisiveness? Some analysts think so.
Overall, the market trend is remaining sideways and we'll likely stay in range during the summer months, said James Moore, of TheBullionDesk.com.
That's a safe bet if history is a reliable indicator, since physical gold market demand typically drops off during the summer months.
Kitco's Jon Nadler looked out shorter term, writing that, The next three sessions could still see stabs toward higher prices if the slew of U.S. economic statistics in the pipeline contains any potentially dollar-damaging surprises.
However, he added that Fed Chair Ben Bernanke has now stirred the pot up a bit, noting that the dollar dips could be contained as concerns about possible direct Fed action have now replaced the perception that the only ammunition the central bank had was in the form of words.
Meanwhile, the real bears are looking to the oil market for guidance.
With crude oil down and looking like it will continue to be under pressure as supplies are up and the threat of a stronger dollar looms ahead, we can expect to see precious metals on a continued downward movement, wrote Miguel Perez-Santalla, of Heraeus Precious Metals Management in New York.
Unsurprisingly, Perez-Santalla concluded that, Overall, things are looking bearish for the metals.
Currencies and Economic News
In the currency market, the dollar edged lower against the euro. Late Wednesday, the euro was trading at $1.5435 vs. $1.5434 on Tuesday.
Bernanke gave a speech for the second time in two days yesterday, this time comparing the present situation with the 1970s, another time of rapidly escalating oil prices and inflation in food and other commodities.
Nonetheless, We see little indication today of the beginnings of a 1970s-style wage-price spiral, in which wages and prices chased each other ever upward, Bernanke said.
Perhaps what he meant to say was that prices are chasing themselves higher while real wages are actually falling.
Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve, Bernanke said. We will need to monitor that situation closely.
Matthew Strauss, senior currency strategist at RBC Capital Markets, analyzed Bernake's words thusly: His comments are consistent with [the previous day's] speech and it seems the Fed is starting to close the door on further rate cuts. However, given the downside risks to growth, we believe it would be premature to price in rate hikes in 2008.
Well, maybe. But it's not likely to be too premature, given that the effects of the current oil shock are only beginning to be priced into other markets.
In the energy market Wednesday, crude for July delivery retreated again, closing at its lowest level in a month, $122.30/barrel, down $2.01. July reformulated gasoline plummeted 15 cents, or 4.5%, to $3.20/gallon.
In its weekly inventory report, the Energy Information Administration said that crude stocks fell by 4.8 million barrels for the week ended May 30.
However, refinery utilization was up 1.8%, at 89.7% of capacity, compared with 87.9 % a week earlier, and that led to gains in gasoline, up 2.9 million barrels, and distillates, up 2.3 million.
Today's report of a drawdown in crude stocks and builds in distillates and gasoline could show that refiners are beginning to increase production of products in response to higher profit margins, wrote Thomas Hartmann, of Altavest Worldwide Trading.
But coupled with slowing consumer demand for gasoline and a strengthening dollar, it's of little surprise to see crude prices back off, he added.
The base metals were mixed again on Wednesday. Copper had some big ups and downs but in the end was little changed as it finished at $3.6206/lb., down a penny and a half. Nickel dipped below the $10 mark in the pre-dawn hours, but rallied back to close at $10.1741/lb., up more than 9 cents. Zinc had an up day, adding a bit less than 2 cents, to $0.8879/lb. Aluminum sank for most of the day, just coming off its lows late to end at $1.2883/lb., down nearly two cents, while lead sagged after two positive days, shedding a penny and three-quarters, to $0.9046/lb.
Analysts attributed copper's slight decline mostly to technical selling.
Sentiment in the whole complex in metals is weaker, said Larry Young, a senior trader with Infinity Futures. Traders are looking for a rationale to decide to turn. But right now sentiment is to the downside, so traders are staying with the trend.
The lack of enthusiasm has been maintained over the past couple of days by Ben Bernanke's remarks about interest rates and the economy in general.
Bernanke's comments were misguided and his speech meant negative news for copper demand, said Patrick Chidley, an analyst at Barnard Jacobs Mellet in Stamford, Connecticut. He has got to focus on growth and avoiding a recession. He indicated that he's not interested in cutting rates and may even want to raise them.
Bernanke had nothing positive to say about the housing sector, the backbone of copper use in the U.S., as he foresees a continuing contraction of construction and overhang of unsold homes.
Until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside, Bernanke said.
That wasn't what industrial metals traders wanted to hear.
Adding to the gloom was a report yesterday that showed European retail sales slid 2.9% in April. That was more than three times as much as economists had forecast, and it followed reports earlier in the week showing that manufacturing has cooled in both the U.S. and China.
A background of slowing consumption growth will weigh on copper as prices trend downwards as the year progresses, analysts at Standard Chartered Plc wrote.
That's what's happening ... see you tomorrow!
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