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Precious Metals

Gold pushed to $965 just before New York opened on Wednesday, but then sold off sharply, falling below $950 in the late morning, before edging slowly higher through the rest of the day and finishing at $954.10/oz., down 50 cents. Overnight, gold is unchanged.

Platinum shot higher in late Hong Kong trading, but then got stuck in the narrowest of trading ranges, never straying from $1260-1270 all day, and ending at $1262, up $13. Overnight, platinum has been flat.

Silver mimicked gold, peaking at $15.50, dropping almost back to $15, then bouncing up and down to close at $15.17, down 5 cents. Overnight, silver is slightly lower.

The precious metals had a day of little change which reflected the mixed messages from the usual suspects, with crude busting higher, but the dollar also turning in a strong performance.

James Moore, an analyst at TheBullionDesk.com, had some mixed messages of his own, writing that “for the moment the traditionally inverse relationship [gold/dollar] appears to be back in place.”

While, “Short-term we still view the market as overbought … Dips continue to be limited by strong buying interest as inflation fears overshadow economic ‘green shoots’ sentiment,” Moore said.

And the Hightower Report wrote of silver: “The silver market also managed an impressive recovery attempt after seeing some initial weakness early in the trading session. Like gold, silver was temporarily undermined by the news of a repayment of TARP funds, but given the magnitude of the gains in silver, copper and tin prices on Tuesday one almost got the sense that classic physical commodity forces were providing the silver bulls with their fresh incentive.”

Currencies and Economic News

In the currency market, the dollar moved higher against the euro. Late Wednesday, the euro was trading at $1.3984 vs. $1.4089 on Tuesday.

The buck rallied, according to Marketwatch.com, “as a drop in stocks on Wall Street encouraged safe-haven flows into the greenback, helping offset foreign-exchange concerns over reports that Russia would cut its holding of U.S. Treasurys.”

“The bond market fell hard and yields went up after [Russia's] announcement,” said Ashraf Laidi, chief currency strategist at CMC Markets.

Alexei Ulyukayev, first deputy chairman of Russia's central bank, said the bank plans to reduce the amount of Treasuries it holds in reserves, according to various media reports. Ulyukayev also said that Russia would switch some of its reserves into bonds issued by the International Monetary Fund.

Russia presently holds US$400 billion in reserves (30% of its total), and won’t divest all at once. Ulyukayev said the move would be gradual and only replace the Treasuries as they expire. The share of reserves held in foreign bank deposits, reduced in the wake of the banking crisis last year, will be upped.

“Now this share [of Treasuries] will fall because the window of opportunity is opening, the situation with banks is becoming clearer,” Ulyukayev said. “We will increase the share of bank deposits, the share of repos will be bigger as well.”

Russia has pledged to buy about $10 billion worth of bonds to be issued by the IMF as part of a fundraising effort to help countries hit by the global financial crisis, but on no specific timetable.

Positioning in advance of this weekend’s G-7 meeting may be going on.

“I'm sure there is also some saber-rattling ahead of the G7 in Italy. Europeans want to keep a strong dollar. But every time oil goes up, Russians want to flex their muscles,” Laidi said.

Energy

In the energy market on Wednesday, crude for July delivery forged ahead, closing at $71.33/barrel, up $1.32. July reformulated gasoline rose 4.86 cents, to $2.0153/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks fell by 4.4 million barrels in the week ended June 5. That was a shocker, as analysts had been expecting an increase of around 800,000 barrels.

At the same time, gasoline supplies fell by 1.6 million barrels, and distillates were off 300,000 barrels. Refineries were operating at 85.9% of capacity, vs. 86.3% a week earlier.

“This is a clearly bullish report,” said James Williams, of WTRG Economics. “The decline in crude, gasoline and distillate stocks should add to the current feeding frenzy in petroleum speculation.”

Meanwhile, the world's proven oil reserves stood at 1.258 trillion barrels at the end of 2008, excluding Canadian oil sands, down 0.2% from 1.261 trillion barrels in 2007, according to BP's statistical review of world energy released yesterday.

The review also said that global oil consumption fell by 0.6%, or 420,000 barrels a day, last year. It was the first decline since 1993 and the largest drop in 27 years.

Base Metals

The base metals were all red in the face on Wednesday. Copper was off in the pre-dawn hours, then traded mostly within a tight 2-cent range all day, finishing at $2.3213/lb., down just under 4 1/2 cents. Nickel pushed close to the $7 mark in the pre-dawn hours but then subsided, drifting slowly down to end at $6.7449/lb., down a half-cent. Zinc was modestly lower, closing at $0.7213/lb., down three-quarters of a cent. Aluminum was off sharply at mid-morning, and wound up shedding nearly 3 cents, to $0.7267/lb., while lead was also weak, dropping a penny and two-thirds, to $0.7685/lb.

Copper led the industrial metals lower, as analysts saw consolidation as the order of the day after the metal reached an eight-month high. Many now see it as having the momentum to stage a push to $2.50.

Any potential copper had to turn in a positive day, however, was probably restrained by the resurgence of the dollar.

The industrial metals also received support from a story in Hong Kong’s Ming Pao Daily, stating that the country's industrial production likely rose by 8.9% in May from a year earlier. That would be bigger than April’s 7.3% increase and beat economists’ estimates of a 7.7% gain. The newspaper cited unidentified “market sources.” The government will release the official data this week.

In addition, Chinese consumer prices fell for a fourth month, making it easier for the government to maintain its “moderately loose” monetary policy to revive the economy. “Buying momentum is still strong as more signs point to a clear recovery of the economy,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance.

“China has done all the right things to support the domestic economy,” Fidelity’s Stephen Ma says. “I believe China’s GDP growth will continue to surprise people on the upside.”

And stockpiles prolonged their fall, with copper inventories monitored by the LME dipping by 2,075 metric tons yesterday, to 294,275 tons.

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


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