Good morning …

Precious Metals

Gold was unchanged in the first hour of New York trading on Friday, but that was as good as it got, with the metal plummeting nearly $25 by mid-morning, after which a rally to the late Comex was abruptly snuffed out and the price limped to a finish at $954.60/oz., down $25.80. For the week, gold slipped 2.6%.

Platinum peaked in Hong Kong, then traded choppily through the day but with a general down bias, ending at $1263, down $28. For the week, platinum was up 6.3%.

Silver was already declining when it hit the same strong morning selling as gold, and it dropped briefly below $15.20 at mid-morning, a low that it nearly revisited as it remained weak through the day to close at $15.27, down 61 cents. For the week, silver skidded by 3.4%.

The precious metals capped an up-again, down-again week by visiting the down end of the seesaw, as a strengthening dollar clipped off all of the rebound gains turned in on Thursday.

The Hightower Report summed up a disappointing day for gold in this way: “After an early rally into the US Non farm payroll data, the August gold contract fell back sharply. With the US numbers potentially seen as supportive to recovery and or inflationary views, it was somewhat surprising to see gold prices fall back so sharply. However, in addition to a partly overbought short term technical condition in the gold market, it is possible that gold was undermined by the sudden and rather distinct rally in the US Dollar. Just to disappoint the bulls even more, gold prices even failed to benefit from a temporary rise above the psychological $70.00 level in crude oil.”

Despite the zigzag nature of gold’s recent path, many analysts believe they are seeing a sea change in the way the metal is being viewed around the world. It’s not just about investment value any more, they say.

In other words, gold is money.

As Mark O'Byrne, executive director at Gold and Silver Investments Ltd., puts it, “Gold will likely be increasingly used as a safe-haven monetary asset to protect and bolster national currencies as it has been throughout history.”

As the common currency to the world [the dollar] devalues, then gold by extension has to gain in value,” said Marcus Hudson, president at Hudson & Associates.

We couldn’t agree more.

Currencies and Economic News

In the currency market, the dollar was sharply higher against the euro. Late Friday, the euro was trading at $1.3968 vs. $1.4171 on Thursday.

The day’s big numbers were in the much-anticipated employment report from the Labor Department, which said that job losses slowed in May. Labor said that nonfarm payrolls declined by 345,000, the smallest job destruction in eight months. That was far under economists’ projections for something closer to 500,000.

The currency market surely took note, as this “may be the stamp of approval we've ended the panic period,” in the words of Max Bublitz, chief strategist at SCM Advisors. “People think they don't need to sell the dollar.”

However, the drop in job loss was nowhere near job creation. “The pace of deterioration is slowing, but we are still a long way from the point of stability in both the labor market and the broader economy,” said David Greenlaw, of Morgan Stanley.

The report also noted that the economy has lost 6 million jobs since the recession began in December 2007. Payrolls have fallen by 4.3%, the biggest loss since the 1957 recession.

Underlining the seriousness of the situation, overall unemployment rose by 787,000 in May to 14.5 million, pushing the jobless rate from 8.9% to 9.4% -- the highest level since August 1983. Unemployment is up 5% from its low, the biggest increase since the Great Depression.

And that’s just the leading edge of the wave. If the data included discouraged workers and those whose jobs have been cut back to part-time status, the number of un- and underemployed rose to 16.4% from 15.8% in April. The number of workers forced into part-time positions rose by 164,000 to 9.1 million.

We are not out of the woods yet.

Energy

In the energy market on Friday, crude for July delivery slipped, closing at $68.44/barrel, down 37 cents. July reformulated gasoline fell three-quarters of a cent, to $1.9546/gallon.

Crude flirted with the $70 mark yesterday, briefly topping it for the first time in six months, at $70.32, in a rush of optimism immediately after the jobs data came out.

Despite the slippage, crude ended the week up 3.2%.

“Crude turned around to the downside because of the strength we are seeing in the U.S. dollar,” said Tariq Zahir, of Tyche Capital Advisors. “More importantly, the fundamentals of crude oil are still bearish … Demand is down, and inventories are up.”

Credit Suisse analysts concurred, saying that, “Demand destruction is still a topic in the market … At the same time, OPEC production has started to grow again. We think price risks are skewed to the downside.”

In the natgas arena, the fuel was higher on the week, with July futures gaining 10%, to $3.868 per million British thermal units.

Base Metals

The base metals were mostly in negative territory on Wednesday. Copper pushed above $2.30 in the early pre-dawn hours, but fell below $2.22 by late morning, then rallied back a bit to finish at $2.2506/lb., down 2 1/4 cents. Nickel followed copper, though it peaked a little later and came off its lows more strongly, ending at $6.5272/lb., down 4 1/2 cents. Zinc traded listlessly, in the end dropping less than a half-cent, at $0.7018/lb. Aluminum was modestly lower, shedding a third of a cent, to $0.6981/lb., while lead bucked the general trend by tacking on two-thirds of a cent, to $0.7549/lb.

The base metals turned mostly south after Thursday’s big gains, with copper leading the sector lower as the stronger dollar lessened the metals’ appeal as an inflation hedge.

“Copper was down in a profit-taking retreat from the initial upside reaction to U.S. May payrolls data. Firmer dollar and fund money flows out of the broader commodity complex weighed on values,” said Bill O'Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey.

Nevertheless, that employment data helped to limit yesterday’s losses in copper, according to Frank McGhee, of Integrated Brokerage Services LLC in Chicago. The jobs report “adds to the euphoria people have, thinking that the worst is over,” McGhee said.

Stockpiles were supportive, notching another milestone as they fell below the 300,000 level for the first time since last December. Copper inventories monitored by the LME dropped by another 3,225 metric tons yesterday, to 299,975 tons.

Meanwhile, aluminum headed for its biggest weekly gain in 21 years, as metal earmarked for shipment from warehouses registered with the London Metal Exchange jumped almost 15% to 81,375 metric tons, signaling a sharp rise in demand.

“Some distributors are showing renewed buying interest on concern that they will not be prepared to meet orders when demand returns,” Deutsche Bank analysts wrote.

That’s what’s happening … have a great weekend and see you Tuesday!


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