Good morning ...

Precious Metals

Gold peaked at $909 at the start of London trading on Monday, but declined to $895 by mid-morning on the NYMEX, rallied back near $905 at the noon hour, but then fell again before leveling off on the Globex to finish at $892.60/oz., down $9.60 from Friday. Overnight, gold is sharply lower.

Platinum surged close to $2100 in the far East, but retreated into New York trading, where each rally was choked off, finally bringing the day to an end at $2043/oz., down $26. Overnight, platinum has fallen off.

Silver hit an intraday high north of $17.60 at the London open, but then took a jagged trip south, with each rally followed by an equal or greater dip, until it closed at $17.08/oz., down 42 cents. Overnight, silver is trending lower.

Not a great day for the precious metals, but nothing unexpected in the action, in light of a rallying stock market, strengthening dollar, and falling oil prices. Those who were predicting a follow-on to Friday's craziness didn't get it.

Bullion prices ran into expected resistance at the $910 level as participants were focused on oil prices first, but were also keeping an ear open for words from Dr. Ben later today, wrote Kitco's Jon Nadler.

Nadler referred to a major speech from Federal Reserve Chairman Ben Bernanke, about inflation, that was due to be delivered Monday evening, with two of his central-bank colleagues also speaking.

Gold remains underpinned by international tensions, particularly those between Iran and Israel that were fanned last week after talk that Israel was prepared to move unilaterally against Iran if that country did not discontinue its nuclear program.

All the war talk increases the uncertainty in the geopolitical situation and adds to safe-haven buying in gold, said Matthew Zeman, a trader at LaSalle Futures Group in Chicago.

Ralph Preston, an analyst at Heritage West Futures in San Diego, went further. Calling gold a barometer for geopolitical activity, he predicted that the metal would reach $1,200/ounce and oil would top $175/barrel within 30 to 90 days stemming from an international event, whether it would be a coup in Pakistan or an escalation of the unrest in the Middle East.

Currencies and Economic News

In the currency market, the dollar rebounded strongly against the euro. Late Monday, the euro was trading at $1.5625 vs. $1.5777 on Friday.

The buck rallied after Treasury Secretary Henry Paulson said in a CNBC interview that he would never take the option of foreign exchange market intervention off the table. That was a surprise since Paulson's usual mantra is that markets should determine currency rates based on fundamentals.

This hence represents a subtle shift, although it may have been the astute form of questioning from [CNBC reporter Steve] Liesman, whose question was an excellent lure into obtaining a truthful answer with respect to the intervention question and left Paulson little wiggle room to use his standard comebacks to duck the question, wrote Tony Crescenzi, chief bond market strategist at Miller Tabak & Co..

Meanwhile, on t'other side of the pond, European Central Bank President Jean-Claude Trichet reportedly repeated the possibility the ECB might raise rates at its next meeting.

I will repeat exactly what was said, Trichet said, according to the AP. I did not exclude that we could increase by a small amount present interest rates. I said it was not certain, but it was possible.

And back home, Dallas Fed president Richard Fisher said, I think the inflationary impulses we have are beginning to dampen economic activity and that global inflation is something global monetary authorities will have to come to grips with. The question is how and when.


In the energy market Monday, crude for July delivery pulled back from its Friday moonshot, closing at $134.35/barrel, down $4.19. July reformulated gasoline plunged 15.6 cents, to $3.394/gallon.

Perhaps Monday's decline will show up at the pump soon, but it hasn't yet, as retail prices in the U.S. for a gallon of regular gasoline surpassed $4 on Sunday for the first time. Gas averaged $4.023 on Monday, according to AAA's Daily Fuel Gauge Report, or better than 30% higher than a year ago.

Those prices are being driven by the high cost of crude oil, said AAA spokesman Geoff Sundstrom, because there is no shortage of gasoline in the United States ... In fact, refineries actually trimmed their output earlier this year in response to flat demand.

Meanwhile, OPEC President Chakib Khelili said yesterday that there is a speculative bubble in the oil markets, and if it weren't for a weak dollar and geopolitical problems, oil should be trading around $70 a barrel.

Bernard Picchi, of Wall Street Access, said he believes there is ample evidence of oil-market manipulation, but not by oil companies or hedge funds, but by governments who subsidize consumption with below-market oil prices.

Picchi cited China, where he estimates oil price subsidies now run $125-150 billion a year. Worldwide, Picchi says, several dozen governments subsidize their citizens' oil consumption (30 million barrels per day, or 35% of world demand) at an annualized cost of $500-650 billion.

Perhaps the ultimate anti-bull, Picchi predicts oil prices will fall over the next several years much as they did between 1979 and 1986 when U.S. and world oil demand fell by 14% and 7%. He adds that he believes demand has peaked for the foreseeable future, and perhaps for all time, at 21 million barrels per day. For all time? Pretty bold.

Base Metals

The base metals were very quiet on Monday. Copper peaked at $3.73 during the pre-dawn hours but declined from there until about noon, after which it staged a slight comeback to finish at $3.6831/lb., down a penny and a third from Friday. Nickel pushed above $10 in the pre-dawn hours, but couldn't hold there, dropping until mid-morning, then rallying to close at $9.9168/lb., down 2 1/4 cents. Zinc was rangebound through the day, ending up a bit less than a half-cent, at $0.8863/lb. Aluminum was gently lower through the day, shedding three-quarters of a cent, to $1.3089/lb., while lead inched higher, adding a third of a penny, to $0.8806/lb.

Copper wandered around to little ultimate effect during thin trading yesterday, due in part to the Shanghai, Hong Kong and Australian markets being closed.

Traders also cited the strengthening dollar and falling price of oil as factoring in. Copper seems to be following every tick in the oil price, said RBC Capital Markets analyst Alex Heath.

However, The correlation between the dollar and commodities has become much more significant, said analyst Dan Smith at Standard Chartered.

The fact is that there has been little market-moving news regarding fundamentals, leaving investors to focus on energy and the path of the dollar, which has an inverse relationship with industrial metals prices.

Absent a sudden rise in demand, low levels of copper stocks will provide support. Demand looks soft but supply disruptions are still lurking, a Societe Generale research report said, and as if to confirm that, inventories monitored by the LME sank 1,400 metric tons, to 121,150 tons yesterday, or 2 1/2 days of global consumption.

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


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