Good morning ...

Precious Metals

Gold had another lackluster day, slumping to $865 just after New York opened, then making its way higher in fits and starts, finishing just into positive territory at $878.00/oz., up 60 cents. Overnight, gold has fallen off.

Platinum also bottomed in the first hour of New York trading, but it then found buyers that took it steadily higher, ending at $2006/oz., up $15. Overnight, platinum is sharply higher.

Silver bottomed at the same time as gold, at $16.50, but then it caught fire, shooting virtually straight up past $17.15 by mid-morning, eased back below $17 into the noon hour, but then re-ignited and closed near its intraday high at $17.15/oz., up 35 cents. Overnight, silver has been trending higher.

It was an odd day for the precious metals, as silver decoupled dramatically from gold, registering a sharp increase even as gold continued to struggle. Platinum too outperformed the yellow metal, posting a larger gain.

It had to be a disappointing day for gold bugs as the metal's performance was anemic even with the usual suspects lined up solidly in its favor: oil climbing steeply and the dollar getting hammered against the euro.

Of silver, the Hightower Report wrote: With the silver market also getting its share of private bearish price predictions during the trade Thursday it was very impressive to see the market generally favor the upside. In fact, with gold favoring negative ground for most of the session, some of the bull contingent had to be extremely happy with the action today. Perhaps the silver market was garnering some support from the reversal in the Dollar and perhaps the silver market was actually lifted by the up beat macro economic developments from the US. In fact, with favorable initial and ongoing claims, positive May retail sales figures and a soaring equity market, perhaps the silver market was being lifted by improved physical demand expectations.

That gold lagged the rest of the market was a foregone conclusion to those who believe it will follow the dollar and who shrugged off yesterday's weakness in the buck.

It's [Ben] Bernanke who drove down gold, said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. He has basically said the other day that interest rates are going up. If the dollar is going higher, gold is going lower.

Period? Uh uh, says James Moore, of, who wrote that as inflation becomes an increasing issue globally and credit market issues resurface, investors are likely to increase their demand for safe-haven assets such as gold.

Currencies and Economic News

In the currency market, the dollar tanked against the euro. Late Thursday, the euro was trading at $1.5568 vs. $1.5435 on Wednesday.

The European Central Bank, at its meeting yesterday, decided to leave its key interest rate at 4%, as expected. However, it was the accompanying rhetoric that caused a stir.

It is not excluded that, after having carefully examined the situation, that we could decide to move our rates a small amount in our next meeting in order to secure the solid anchoring of inflation expectations, said ECB President Jean-Claude Trichet.

Trichet's qualifier-I don't say it's certain. I say it's possible.-sounded unconvincing to many.

Trichet continues to sound the hawkish trumpets, revealing that some on the ECB board wanted to hike rates, and admits that while not certain, the ECB could raise rates next month. This is significantly more hawkish than any expected, wrote Marc Chandler, of Brown Brothers Harriman.

The ECB's also released revised staff projections for an average inflation of between 3.2% and 3.6% in 2008, with a midpoint of 3.4%. That's dramatically higher than the March projections for a midpoint at 2.9%, and well above the ECB's target of below 2%.


In the energy market Thursday, crude for July delivery recovered its recent losses, closing at its highest level in a week, at $127.79/barrel, up $5.49, or 4.5%. July reformulated gasoline rocketed 13.45 cents higher, to $3.3345/gallon.

Trichet's comments were seen as the driving factor.

Profit taking and/or selling in the crude market over the past week came to sudden halt and buyers stepped back to the plate based on these inflationary comments out of Europe, wrote Thomas Hartmann, an analyst at Altavest Worldwide Trading.

But there was a technical aspect, too. The price advance in crude futures accelerated after breaking yesterday's highs, likely setting off a round of frenzied buying in the last hour of trading, Hartmann added.

And James Williams, of WTRG Economics, sees a market divorced from fundamental supply and demand ... The decline in the dollar on the possibility of higher European interest rates only explains about 1/4th of [yesterday's] move, Williams wrote.

Base Metals

The base metals were mixed again on Thursday. Copper sank during the pre-dawn hours and fought its way back during the New York session though it fell short of positive territory at $3.6068/lb., down more than a penny and a third. Nickel soared to near $10.50 in the pre-dawn hours, fell sharply into the New York open, but rallied from there to close at $10.2603/lb., up 8 1/3 cents. Zinc slumped straight through, only coming off its lows at the end to finish at $0.8745/lb., down a penny and a third. Aluminum was flat until New York opened, then pushed higher all day, ending at its intraday high of $1.301/lb., up a penny and a quarter, while lead sagged without much relief, shedding 3 2/3 cents, to $0.8679/lb.

The pattern seems firmly in place at this time, days of no major changes in industrial metals' prices, but with an overall down bias. Maybe this is what we're in for until the U.S. economy gives an unequivocal signal as to which way it's heading.

The negative sentiment was bolstered again yesterday as the Organization for Economic Cooperation and Development reported that it has cut its growth forecast to 1.8% this year and 1.7% in 2009. Those are the weakest numbers since 2002, reflecting the belief that the U.S. housing-led slowdown is spreading around the world.

Concurrently, London-based researcher CRU cut its estimate for this year's demand growth in China, the world's largest copper user, to a high single digit, compared with the 11% earlier projected. In contrast, China's copper demand expanded 19% last year.

Manufacturers of copper products are experiencing tight cashflow because of rising debt servicing costs after higher interest rates, CRU said, the result of China's central bank having raised rates to a nine-month high in December to try to curb inflation.

On the supply side, inventories monitored by the LME rose 1,250 metric tons, to 123,500 tons yesterday, after four days of decline. Including New York and Shanghai exchanges, stocks are equal or 3.5 days of global consumption, less than last year's average of 4.9 days, but well above the 2-day supply they'd fallen to earlier in the year.

The Chilean Copper Commission is still projecting a shortfall of 46,000 tons this year, but predicts a huge surplus of 450,000 tons in 2009. That would be the first such surplus in seven years.

William Adams, of London-based, summed it all up by saying, I'm generally bearish now on metals for the rest of the year ... The housing-market downturn and credit crunch will move around and affect Asian demand as well.

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


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