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Precious Metals

Gold had another pretty blah day on Tuesday, rising early in the Hong Kong session, falling below $950 at the mid-point of London trading, bouncing back over $960 by mid-morning, then dropping back to $955 and hugging that mark through the rest of the day, to finish at $954.60/oz., up $4.00. Overnight, gold is trending higher.

Platinum was off more than $20 in Hong Kong, but turned around and climbed slowly back to $1250 by the New York open, then stuck closely to the mark all day, ending at $1249, up $7. Overnight, platinum is sharply higher.

Silver bottomed below $14.80 early in Hong Kong, then shot higher to the Comex open, peaking there at $15.30, before settling back to $15.20 and remaining glued to the mark, closing at $15.22, up 33 cents. Overnight, silver is pushing higher.

The precious metals posted a mirror image of the previous day’s action yesterday, essentially just winning back the same small patch of ground they gave up on Monday.

That might have been expected as the usual suspects provided support, with the dollar sliding and oil rallying, although considering the magnitude of the buck’s drop one might have wished for a bit more in the way of gains.

“Metal market fundamentals are not showing signs of dramatic change, so investors are more focused on movements of the dollar and oil prices,” wrote analysts led by Alex Heath at RBC Capital Markets.

Indeed, the precious metals, especially gold, appear to be drifting around, waiting for something of consequence to happen to either kick start them higher, or send them into a tailspin.

There is probably some lingering pressure being exerted by the spectre of an IMF gold sale. International Monetary Fund chief Dominique Strauss-Kahn said on May 27 that Congress should decide within days whether to support the partial sale of the IMF’s gold reserves.

The IMF’s board has already approved plans to sell nearly 13 million ounces of bullion. Next the proposal needs the approval of Congress, and then of other member countries. Congress has always balked at similar proposals in the past, but this time, in the end, it is expected to go through.

Currencies and Economic News

In the currency market, the dollar fell off against the euro. Late Tuesday, the euro was trading at $1.4089 vs. $1.3883 on Monday.

Analysts said that traders were expressing doubt about the long-term staying power of the buck, despite its recent resurgence.

Bears argued that the greenback's recent jump was largely a rebound from technically oversold levels and that fundamentals will favor a return to weakness in the U.S. currency in the near term.

There was, however, some level of support for the dollar, in the form of hesitancy among forex traders to be short the currency ahead of the Group of Eight meeting in Italy, which begins on Friday.

“The looming G8 meeting this weekend is no doubt cause for some squaring of (U.S. dollar-short positions) to protect against any comments from the sidelines to the effect that (the dollar's) decline has been unreasonably rapid in recent weeks,” wrote Sue Trinh, of RBC Capital Markets,.

Technicians chimed in, noting that euro's dip on Monday following Standard & Poor's downgrade of Ireland's credit rating failed to break below an important support level at $1.374.

Elsewhere, the Financial Times reported that BlackRock is close to an acquisition of Barclays Global Investors, in a deal that could reach $13 billion. The buyout would included BGI’s iShares, the exchange-traded fund business.

That would negate a $4.4 billion April agreement, in which Barclays agreed to sell iShares to private-equity group CVC Capital. But the deal included a go-shop clause, giving Barclays until June 18 to come up with a better offer.

Rumors also have Bank of New York Mellon, Vanguard Group and others in the running to buy iShares or BGI, the world's largest money manager with more than $1.5 trillion in assets under management. The stakes are high, and this could get very interesting.


In the energy market on Tuesday, crude for July delivery pushed past $70, closing at $70.01/barrel, up $1.92. July reformulated gasoline rose 3.4 cents, to $1.97/gallon.

Analysts ascribed the rally to the dollar’s decline and Energy Department forecasts of higher fuel prices.

“Recent parallels between the movements of the U.S. dollar and the oil price are the result of market expectations that there will be an economic recovery soon, which will eventually lead to higher interest rates and higher oil demand,” wrote analysts at Commerzbank.

But they also cautioned that “demand is very fragile, especially at currently high oil price levels.”

Meanwhile, the Energy Information Administration raised its outlook for this year's crude-oil and gasoline prices. Crude is expected to average $58.70 a barrel this year, the EIA said in its monthly report, up from the $52 forecast a month ago. The EIA also raised the outlook for next year's crude price to $67.42/barrel from $58.

Regular gasoline prices are expected to average close to $2.70 a gallon in July, the agency said. Average price for the full year is expected to be $2.33.

Base Metals

The base metals were all well into the green on Tuesday. Copper surged, finishing at $2.3655/lb., up more than 13 cents. Nickel followed copper higher, ending at $6.75/lb., up 37 2/3 cents. Zinc was strong, closing at $0.7287/lb., up 4 1/3 cents. Aluminum had a good day, adding 3 1/2 cents, to $0.755/lb., while lead completed the banner day, rising to $0.7854/lb., up more than 4 cents.

Copper led the industrial metals higher, riding up on the sliding dollar and signs of economic growth out of China.

The dollar’s inverse relationship is evident from the numbers over the past nine weeks. Copper has climbed 28% as the dollar slumped 6.6%.

“We will see copper prices continue to rise on the dollar weakness story,” said Michael Pento, of Delta Global Advisors in Holmdel, New Jersey. “The decline in the dollar will help all of the commodities.”

Pento added that he can see copper advancing to $2.75 a pound by the end of the year as inflation picks up. He has a track record on the subject, having in January correctly predicted copper’s 2009 rally.

“Copper is underpinned by growing market expectations for a ‘V’-shaped recovery in China's industrial sector,” said Rob Kurzatkowski, of OptionsXpress in Chicago

That view was bolstered yesterday by a report that May vehicle sales rose 34% in China from a year earlier, to 1.12 million units, the China Association of Automobile Manufacturers said.

And stockpiles did their part, with copper inventories monitored by the LME falling by 1,500 metric tons yesterday, to 295,550 tons.

That’s what’s happening … see you tomorrow!


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