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Precious Metals

Gold was slightly higher in Hong Kong and early London trading on Wednesday, then rose steadily during the NYMEX session before leveling off through the Globex and finishing at $880.10/oz., up $13.50. Overnight, gold has fallen off.

Platinum rose slowly but surely through the whole day, ending just off its intraday high at $2037/oz., up $45. Overnight, platinum has declined.

Silver followed gold's lead to a T, closing at $16.84/oz., up 28 cents. Overnight, silver is sharply lower.

The precious metals had a strong day, as well they should have, given soaring oil prices and a declining dollar. Traders may have even been a little disappointed that the metals' performance wasn't a bit better than it was

After acknowledging the buck's influence on the day's action, the Hightower Report went on the say that with a sharp upward explosion in energy prices and a host of physical commodities, it is just as likely that classic inflationary buying was being seen in the gold trade. With the US equity market at times under significant selling pressure as a result of the sharp price gains being registered in the commodity markets, it is also likely that classic flight to quality buying was taking place. While the Dollar Index was weak some traders suggested that without a decline below the Tuesday low of 73.31, the currency influence on gold prices might not intensify. In the end seeing crude oil prices virtually explode during the session Wednesday probably rekindled investment interest for gold from a broad range of angles.

Looking down the road, wrote James Moore, an analyst at, short-term direction is still likely to be dollar-driven.

But Moore added that with inflation on the increase, longer-term investors should continue to look favorably towards gold, with the metal likely to carry out further base building ahead of $850 before rallying back towards $1,000 later in the year.

Crude oil, which remains at nosebleed levels, is a primary driver of inflation, and after oil's meteoric rise, gold has a lot of catch-up still to play.

And Matt Zeman, a metals trader at LaSalle Futures Group in Chicago believes that the difference between interest rates on euros and dollars is paramount, leading him to conclude that, Traders are looking at the difference between rates. You've got to believe that people are going to step in and buy gold right now.

Currencies and Economic News

In the currency market, the dollar came off its intraday lows but still sank against the euro. Late Wednesday, the euro was trading at $1.5548 vs. $1.5452 on Tuesday.

The buck rallied a bit from the beating it took in the face of rising oil, but any gains were capped by a dilution of sentiment regarding the possibility of the Fed raising interest rates sometime soon.

Fed Vice-Chair Donald Kohn fanned that particular flame by saying yesterday that, It may be efficient to allow some adjustment period in which both overall inflation exceeds its desired low level and the unemployment rate is higher than its long-run sustainable level...

The goal, Kohn said, would be setting policy in a manner that balances the undesirable effects of a shock to the system on both inflation and employment, [which should] be more efficient than setting policy so as to deliver more extreme outcomes in either inflation or unemployment.

However, Kohn also echoed Chairman Bernanke's recent comments on perception as a self-fulfilling prophecy, by adding that, Any tendency for these longer-term inflation expectations to drift higher or even to fail to reverse over time would have troublesome implications for the outlook for inflation.


In the energy market Wednesday, crude for July delivery skied higher, to close at $136.38/barrel, up $5.07. July reformulated gasoline shot up 15 cents, to $3.47/gallon.

Oil surged after a surprising weekly inventory report on crude stocks from the Energy Department that showed a decline of 4.6 million barrels for the week ended June 6. Supplies are now down 23.6 million barrels in just four weeks.

Energy also reported that gasoline stocks were up by 1 million barrels, and distillates were up by 2.3 million barrels. Refinery utilization stood at 88.6% of capacity, compared with 89.7% a week earlier.

Nevertheless, refiners' utilization has significantly improved over the last month as the gasoline crack spread has expanded mightily, wrote Chris Lafakis, of Moody's Crack spread expansion has provided refineries with all the incentive they need to churn out extra gasoline.

Crack spread is the margin that a refinery can earn by refining a barrel of oil into finished products such as gasoline.

There's no way he's going to call for a top in this market, wrote John Person, president of National Futures Advisory Service. Not by a long shot ... Unless we close back under the $118 level, I would continue to be a buyer in this market on substantial breaks like we did last week near the $122-to-$125 level.

Base Metals

The base metals were mixed again on Wednesday. Copper sagged through the pre-dawn hours, but recaptured the lost ground during the New York session, finishing at $3.6395/lb., up a penny and a half. Nickel had a good day, falling from $10.50 in the pre-dawn hours but getting almost all the way back before closing at $10.475/lb., up 14 1/3 cents. Zinc spun its wheels, ending at $0.8612/lb., down a half-cent. Aluminum was modestly higher, adding less than a half-cent, to $1.3184/lb., while lead was pummeled, plunging to its intraday low of $0.8393/lb., down better than 3 1/2 cents.

Though it was up for the first time this week, copper had a pretty unimpressive day, considering the action in the precious metals and energy markets, and that the Reuters/Jefferies CRB Index increased as much as 2.7%. Traders cited concerns that Chinese demand won't be able to make up for declining US needs.

China's imports of unwrought copper and semi-finished products fell 19.2% in May as compared with April. They were also off 9.8% in May, year over year.

Analysts expect that Chinese refined copper imports data, due at the end of the month, will show a drop of more than 6% from April to May as demand growth slows and domestic output ramps up.

Tighter monetary policies in the country are also likely to affect demand prospects. China's central bank has raised the amount that lenders must hold in reserve by a full percentage point, suggesting authorities are anxious to hold down inflation that could develop as reconstruction work after last month's earthquake begins.

On the supply side, inventories monitored by the LME rose 725 metric tons, to 121,275 tons, on Wednesday.

Protesters yesterday blocked roads leading into Southern Copper's Ilo smelter and Cuajone mine in Peru, as mining companies throughout the country face escalating demands from workers and local communities.

Meanwhile, Freeport-McMoRan said output at its Peruvian copper pit Cerro Verde was as yet unaffected despite workers having gone out on strike over a contract dispute on Tuesday.

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


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