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Precious Metals

Gold was quiet in the far East but took off at the commencement of London trading and really spiked in the first hour of Monday's NYMEX session, peaking at $895 before easing for the rest of the day and finishing at $881.60/oz., up $10.80 from Friday. Overnight, gold has been flat.

Platinum traded very jaggedly, but fought its way higher through the day, ending at $2047/oz., up $16. Overnight, platinum has been flat.

Silver followed gold's lead, but with an even more pronounced spike that took it as high as $17.40 before it slowly declined to close at $17.10/oz., up 59 cents. Overnight, silver has edged higher.

It was a banner day for the precious metals as they rose coincident with the falling dollar. Crude offered some early support as it hit an intraday record before weakening later in the day.

Despite the positive day, some traders were disappointed that gold failed to hang onto a large measure of its gains, falling some $17 from its intraday high even as the dollar sank, but oil's retreat obviously played a large part.

Somewhere, somehow, the message of oil price-induced dangers is getting through, said Kitco's Jon Nadler, but the flip side of that is that gold could turn lower at any signs that crude may have topped out.

John Reade, a UBS AG analyst in London, wrote that currency imbalances are still critical. The euro is near the bottom of its recent range and any sharp rebound toward the top of the range could help gold's direction, he wrote.

UBS forecasts gold will trade at $900 within a month. Investors should buy the metal when the price drops below $850, Reade said.

For now, though, gold is lagging other commodities and isn't fully benefiting from all this talk about inflation, said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California.

Indeed, the Reuters/Jefferies CRB Index of 19 raw materials climbed to a record for a fourth straight session while gold remains well below its alltime highs.

Hedge-fund managers and other large speculators cut net-long positions in Comex gold futures by 11% in the week ended June 10, to the lowest level since September, Commodity Futures Trading Commission data showed.

Perhaps the reduction in the gross longs may be a further sign that gold is losing its attraction, Reade said. Or not.

Currencies and Economic News

In the currency market, the dollar sank against the euro. Late Monday, the euro was trading at $1.5476 vs. $1.5383 on Friday.

Traders were very disappointed in the results of the weekend's G8 finance ministers' meeting, which was expected to produce strong rhetoric, or possibly the announcement of action, in support of the US dollar.

Instead, the G8's final communique emphasized worries about surging inflation but offered no comments on the dollar or foreign-exchange issues.

Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary pressure. These conditions make our policy choices more complicated, the statement said.

The buck was also pressured when the Empire State index of manufacturing conditions in the New York region fell further this month. The survey index dropped to negative 8.7 this month from negative 3.2 in May, indicating industry is still contracting.

Meanwhile, the euro was boosted as an upward revision in the euro-zone consumer price inflation estimate for May to a 3.7% annual pace -- a 16-year high -- solidified expectations that the European Central Bank will hike its key lending rate by a quarter of a percentage point next month, to 4.25%.


In the energy market Monday, crude for July delivery pulled well back from its record intraday high of $139.89, closing at $134.61/barrel, down 25 cents. July reformulated gasoline fell 2.21 cents, to $3.4379/gallon.

The BBC reported that Saudi Arabia will increase its output by 200,000 barrels a day next month, the news coming after a meeting between U.N. Secretary General Ban Ki-Moon and Saudi Oil Minister Ali al-Naimi.

An increase of that nature is not enough to move markets, said James Williams, of WTRG Economics, so This is probably not the final move.

But at the same time, the New York Times was reporting that production was going up by 500,000 barrels, to 10 million a day, which would be an alltime high for Saudi output.

That caused Edward Meir, of MF Global, to comment that, Officially, it seems the Saudis have not made a decision on the final number.

Base Metals

The base metals were mostly in the black on Monday. Copper started up in the pre-dawn hours and continued higher until the late morning, only easing a bit late, to finish at $3.7246/lb., up nearly 6 cents. Nickel nosedived at the open, bottoming in the first hour of trading before regaining some of the lost ground to close at $10.7048/lb., down 13 1/3 cents. Zinc had a pair of sharp ups and downs, ending at $0.8418/lb., up a third of a cent. Aluminum traded choppily but with an upward bias, adding nearly a penny and a quarter, to $1.3241/lb., while lead soared in the morning hours but came off sharply thereafter, winding up with a gain of only a half-cent, at $0.8014/lb.

Copper and most of the other industrial metals were caught up in the commodities rally that resulted from the slipping dollar. Copper, rising to a three-week high, also benefited from signs of economic strength out of China.

China's industrial-production growth gained 16% in May from a year earlier. That was after advancing 15.6% in April, the country's statistics bureau reported yesterday.

Technicians noted that there was continuing technical short-covering carried over from Friday, after support in the July contract held above its 200-day moving average, at around $3.50.

Copper fought off a bearish supply/demand outlook from the International Copper Study Group. Global copper usage is forecast to rise by only 2% this year, the ICSG said, and the market will face a surplus of around 85,000 metric tons in 2008.

But on the supply front, Southern Copper's CEO says its Ilo smelter is running out of supplies and could be paralyzed if roadblocks at that Peruvian operation continue for much longer.

Protesters have shut access to the smelter and mine of Peru's largest producer. The mine and smelter are still at work, but won't be able to make it much beyond this week, the company says.

Meanwhile, lead stockpiles monitored by the LME rose 5.1%, to 83,325 tons, raising inventories to their highest level in nearly two years.

With the increases coming in Singapore, the exchange's largest Asian warehouse, that suggests Asian demand is slowing a bit, said David Thurtell, an analyst at BNP Paribas in London. The market has become much better supplied now.

Lead has fallen 31% in price so far this year. That may force smaller mines to close, which would help stabilize prices, Thurtell said.

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


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