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Gold was cruising at $890 until the start of London trading on Tuesday, but then began declining and continued to do so straight through the day before going flat around noon, and finishing near its intraday low at $866.60/oz., down $25.50. Overnight, gold has been trending higher.
Platinum peaked at $2040 right at the New York open, matched that in the late morning, then plunged for the rest of the day to end at its intraday low of $1992/oz., down $51. Overnight, platinum has pushed higher.
Silver also hit its high when New York opened, then took a pasting along with its sister metals, closing just off its intraday low at $16.56/oz., down 52 cents. Overnight, silver has been flat.
It was a grim day for the precious metals, which were hammered after traders developed a sudden fondness for the dollar and the other major market factor, crude oil, also retreated from nosebleed levels.
Thus, though not unexpected, the anti-metal sentiment certainly pushed to extreme levels.
The dollar/gold trade is negatively correlated right now, and with Bernanke's slew of recent comments related to the dollar and Trichet's comments about inflation, the trade is strongly propping up the dollar and taking out long side trades in gold and other major market currencies, said Zachary Oxman of Wisdom Financial.
Jawboning by federal officials is in full swing now, as they try to prop up the buck, an action that has been asked for by more than one foreign government, most recently China.
Treasury Secretary Paulson was on the stump early on Monday, threatening intervention in the forex markets, followed by Fed Chairman Bernanke, who trotted out the anti-inflation rhetoric on Monday night.
Whether talk will have any ultimate effect on the dollar's slide remains to be seen, but in the interim, any burst of positive sentiment is going to have a dampening effect on the trend line of the precious metals.
Currencies and Economic News
In the currency market, the dollar moved sharply higher against the euro for a second straight day. Late Tuesday, the euro was trading at $1.5452 vs. $1.5625 on Monday.
The buck rallied after Ben Bernanke told a conference on inflation dynamics that, although inflation has remained high because of sharp increases in food, oil and other globally traded commodities, thus far, the pass-through of high raw materials costs to the prices of most other products and to domestic labor costs has been limited, in part because of softening domestic demand.
However, Future developments in this regard will bear close attention, Bernanke said. Moreover, the latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations.
Bernanke and other Fed members believe that when the public expects higher prices, it can become a self-fulfilling prophecy, so the Chairman said that, The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing from growth as well as inflation.
That was enough for the futures market to decide he was saying rate hikes are coming.
Federal funds futures contracts on Tuesday increased the odds the Fed will raise its lending rate, pricing in a 100% chance that the Fed will increase rates by a half-point, to 2.50%, by November, up from the likelihood late Monday of only a quarter-point hike.
Chances of a quarter-point hike at the Fed's August meeting jumped to 45%.
In the energy market Tuesday, crude for July delivery rode the roller coaster, shooting to almost $138 before plummeting to close at $131.31/barrel, down $3.04. July reformulated gasoline fell 7.07 cents, to $3.3193/gallon.
The familiar divide -- higher on supply worries, lower on demand concerns -- is setting the tone again, said Michael Fitzpatrick, an analyst at MF Global.
The International Energy Agency yesterday lowered its forecast for average global oil product demand in 2008, to 86.8 million barrels a day, down 80,000 barrels a day from its estimate last month.
The decline followed the reduction of price subsidies in several countries that are not part of OPEC, the IEA said.
However, the IEA, which cut its demand growth to the slowest rate since 2002, also cut expectations for supply growth, as well, said Fitzpatrick.
Reports of more violence in Nigeria provided some support to prices. The BBC reported that Nigerian militants have killed a sailor in the second attack on navy ships patrolling the Niger Delta region. Four people were injured in the attack on a ship protecting a vessel belonging to Canadian company Addax Petroleum, the BBC reported.
But, Saudi Arabia and Iraq both saw an increase in output which should at least temporarily counteract some of the reduction in supply out of Nigeria, said Jeff Pritchard, an analyst at Altavest Worldwide Trading.
The base metals were mixed on Tuesday. Copper sank through the pre-dawn hours, tried to rally twice during the New York session, but was met with determined selling each time as it fell to finish at its intraday low of $3.624/lb., down nearly 6 cents. Nickel had a good day, rising steadily to push past $10.50 before easing late to close at $10.3321/lb., up 41 1/2 cents. Zinc never recovered its overnight losses, trading essentially sideways through the day to end at $0.8662/lb., down 2 cents. Aluminum was modestly higher, adding a half-cent, to $1.3141/lb., while lead inched lower, dropping a half-cent, to $0.8751/lb.
Copper hit the skids as the dollar rallied, making the metal more expensive to buy for holders of foreign currencies.
The July contract was hovering just above the key $3.50 support level. A break below that mark could touch off sell-stop orders placed underneath $3.50, pressuring prices back down to the lower $3.00 region, according to OPTIONSXPRESS futures analyst Rob Kurzatkowski.
Eric Wittenauer, an analyst at Wachovia Securities in St. Louis, was unequivocal. Copper will continue to grind lower, he said.
Looking a little further out, refined copper use will drop 1.2% in 2008 compared with 2007, said Fred Demler, of MG Global Ltd. Copper consumption will be weak for the next two to three quarters as global growth slows, Demler said.
Interest rate speculation factored in after Bernanke spoke. The mere fact that the highest levels of the government are now on 'dollar-watch' could discourage specs from driving the greenback lower, and more importantly, could derail the 'short dollar/long commodities' spiral that has been with us for so long, saidMF Global analyst Edward Meir.
And on the supply side, workers at Freeport-McMoRan's Peruvian copper pit Cerro Verde walked off the job yesterday. That walkout followed a Friday announcement by Peru's largest federation of mining unions that it will start a nationwide strike on June 30.
That's what's happening ... see you tomorrow!
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