Good morning ...

Precious Metals

Gold had a rollercoaster day that led nowhere on Thursday, starting the day flat through Hong Kong, selling off through the first hour in New York to bottom at $943, rising back above $960 at the close of the Comex, and finally ebbing through the Globex to finish at $954.50/oz., up 40 cents. Overnight, gold has fallen off.

Platinum meandered through the $1250-1270 range all day, ending at $1262, unchanged. Overnight, platinum is trending lower.

Silver followed gold closely, except that its rebound off its lows was more compelling, peaking twice at $15.50 late in the Comex, before easing back to close at $15.38, up 21 cents. Overnight, silver is sharply lower.

In the end, it was quite the boring day for the precious metals, with platinum dead flat, gold just a few cents higher, and only silver showing a little spunk. Hardly what one would expect when the usual suspects were so supportive, with the dollar selling off and oil continuing its climb. But then, this is not a usual market.

Gold has reasons to rally, said Stephen Platt, an Archer Financial Services commodity analyst in Chicago. The dollar is pretty risky to be in ... [and] Chinese demand for gold seems to be better than expected.

Platt backed his assessment with a prediction that gold will probably trade at $990 in a couple of weeks.

Just about everyone knows now that gold production is slipping as older mines play out and newer ones tend to come in at lower grade. Further, environmental regs, escalating equipment costs, and rising governmental royalty grabs have substantially raised the cost of pulling metal from the ground.

Nowhere moreso than in South Africa, where gold output is back at World War I levels, according to analysts from Gold & Silver Investments. Those analysts see a general bullish sentiment in the market, and add that: Very strong support is showing at $935 with resistance still looking to break the magic $1,000 level.

Currencies and Economic News

In the currency market, the dollar slumped against the euro. Late Thursday, the euro was trading at $1.417 vs. $1.3984 on Tuesday.

The U.S. dollar underperformed all the major currencies overnight as risk seeking weighed on the low-yielding greenback, said T.J. Marta, founder and chief strategist at Marta on the Markets.

The day's numbers helped support the risk takers.

The Commerce Department said that sales at U.S. retail stores increased 0.5% in May. Sales were up for only the fourth time in the past year, and the first time since February. Compared with May 2008, though, sales were still down 9.6%, and comparing the first five months of 2009 with the same 2008 period, sales are down 10.2%. The May figure was also below economists' projections for a 0.7% increase.

That led Brian Bethune, chief U.S. financial economist for IHS Global Insight Overall, to comment that the state of retail sales remains weak ... Real consumer spending is still on track to decline slightly in the second quarter.

And until the labor market can create jobs (and not just lose them at a slower pace), discretionary spending will remain weak and there will be little upside potential for consumer spending, wrote Richard Moody, of Forward Capital.

Meanwhile, the Labor Department said that the number of initial jobless claims fell 24,000 to 601,000 in the week ended June 6, better than economists' expectations for an initial claims level of 620,000. More disconcerting was that, in the week ended May 30, continuing claims for benefits reached a new record high, rising 59,000 to 6.82 million from an upwardly revised level in the prior week.

On balance, the decline in initial claims is supportive of the argument that job destruction is beginning to slow within the U.S. labor market, wrote Ian Pollick, economics strategist with TD Securities. On the flip side though, the gallop in continuing claims as well as the increase in the four-week moving average for the continuing claims component suggests that the duration of unemployment continues to hover at record lengths, as the pace of job creation has come to a virtual stand-still.

Energy

In the energy market on Thursday, crude for July delivery continued to bull its way higher, closing at $72.68/barrel, up $1.35. July reformulated gasoline rose 4.96 cents, to $2.0649/gallon.

Yesterday, the International Energy Agency raised its oil demand outlook for the first time in 10 months, pushing its estimate for this year by 120,000 barrels a day to 83.3 million barrels a day.

The IEA is the latest sign the historic drop in global oil demand may be bottoming out and changing course, said Phil Flynn, of Alaron Trading. This adds to the bullish momentum created in the aftermath of [Wednesday's] supply report.

However, the revision does not necessarily imply the beginnings of a global economic recovery, and may only signal the bottoming out of the recession, the IEA wrote.

Edward Meir, of MF Global, injected a cautionary note, writing that energy prices are quite overbought ... A moderate sell-off in the stock market should undoubtedly hit energy prices hard, as the various markets have all been marching higher in lockstep in recent weeks, and could easily reverse course if one of them falters.

Base Metals

The base metals were awash in green on Thursday. Copper was sharply higher from the late pre-dawn hours to about noon, touching $2.44, then fell off a bit to finish at $2.4098/lb., up almost 9 cents. Nickel also made a strong upmove, ending at $7.1146/lb., up 37 cents. Zinc took a big hit in late morning but then gained it all back, closing at its intraday high of $0.7644/lb., up 4 1/3 cents. Aluminum had a good day, tacking on 2 1/4 cents, to $0.7493/lb., while lead roared higher, adding nearly 4 cents, to $0.8073/lb.

Copper notched an 8-month high, leading the other industrial metals on a rampage, as the dollar's decline provided support, along with more positive data out of China.

Chinese copper imports climbed for a fourth month in a row to a record in May. Imports were up 6% from April, to 422,666 metric tons, the Beijing-based customs office said. That confounded analysts, who had been predicting a decline to a level above 300,000 tons.

We were caught by surprise, said Edward Fang, an analyst from China International Futures (Shanghai) Co. We assume these shipments were from arbitrage trading earlier this year, as the arbitrage has already turned bad.

The premium of Shanghai copper over London prices fell to around $600/ton at the end of May, down from a high of around $1,293 on April 13.

In addition, customs data showed China's scrap imports down 17% in May from a month earlier, and off 39% from a year ago. We heard customs in the Guangdong area recently started its annual crackdown on scrap metals smuggling, Chen Yisheng, a Minmetals Starfutures analyst, said. It should tighten scrap supplies in the next couple of months.

And stockpiles prolonged their fall, with copper inventories monitored by the LME down 1,100 metric tons yesterday, to 293,175 tons.

Freeport-McMoRan Copper & Gold CEO Richard Adkerson commented on the situation, saying that, Global copper inventories are still low and although metal prices are rising, there is not yet enough demand to increase production.

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



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