Good morning …

Precious Metals

Gold’s chart looked like it was composed by a bunch of people randomly bumping into one another on Wednesday, first rising in Hong Kong, then plummeting below $929 at the Comex open, rising again for an hour, falling for two, and finally sustaining an upward push from late morning through the Globex to post an exhausted close at $938.80/oz., up $4.00. Overnight, gold has edged lower.

Platinum drifted from a high of $1220 in Hong Kong to below $1200 at the New York open, then pushed barely back over the mark as the day went on, and ended at $1201/oz., down $15. Overnight, platinum is little changed.

Silver dropped nearly to $13.90 just before New York opened, then was steadily higher during the Comex, before leveling off through the Globex to close at $14.32/oz., up 14 cents. Overnight, silver is trending lower.

It was a mixed day for the precious metals, as gold and silver posted modest gains, while platinum continued its recent falloff. Gold likely turned its day around on the back of the slipping dollar, along with a rebound in the energy sector.

“The dollar [is] likely to provide much of gold's short-term direction,” wrote James Moore, of TheBullionDesk.com. “We expect the current theme of dip buying to continue.” And many dips there are likely to be, considering that we are entering the summer season, traditionally a period of the doldrums for gold.

As for platinum, which dropped to a 2-week low, its recent slide is tied both to tame inflation, which reduces its appeal as a hedge, and to retreating sentiment that a rebound in industrial demand is in the cards anytime soon.

Platinum’s industrial use is largely tied to the auto industry, and Robert Bosch, the world’s largest automotive supplier, said it expects global vehicle output to drop as much as 20% this year.

“The risk remains that of seeing lower values and what appears to have become the end of de-hedging in the mining sector,” wrote Kitco’s Jon Nadler. “The automotive sector continues to go through some kind of tectonic shift. The automobile industry and market will look nothing like that of today, in five years, or less.”

Currencies and Economic News

In the currency market, the dollar slipped again against the euro. Late Wednesday, the euro was trading at $1.3895 vs. $1.3846 on Tuesday.

The buck hit the skids after the Labor Department reported U.S. consumer prices increased a seasonally-adjusted 0.1% last month. That was well below economists’ expectations for a 0.3% rise. The CPI has now fallen 1.3% in the past year, the biggest decline in prices since April 1950.

Core CPI -- excluding food and energy -- also rose a seasonally adjusted 0.1% in May, right in line with expectations.

“While headline inflation will likely be temporarily boosted in the near-term by substantial upside in gasoline prices, we expect core inflation to continue to decelerate steadily going forward as slack in the economy reaches unprecedented levels,” wrote economists for Morgan Stanley.

The day’s paradox was that, “The lesser the inflation threat gets, the more support the dollar should have gotten,” said Brian Dolan, chief currency strategist at Forex.

Investors have been closely watching for any inflationary trend, which might prompt the Federal Reserve to raise its target overnight rate from record lows in the future. The Fed meets next week.

This week’s CPI and PPI numbers seem to indicate that “the Fed will point strong forward-guidance language in next week's FOMC statement to suggest that the Fed is unlikely to fulfill market expectations of four rate hikes over the next 12 months,” said analysts at RDQ Economics.

Energy

In the energy market on Wednesday, crude for July delivery slid below the $70 mark, but rebounded to close at $71.03/barrel, up 56 cents. July reformulated gasoline fell 3.8 cents, to $2.033/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks dropped by 3.9 million barrels for the week ended June 12. Gasoline supplies rose by 3.4 million barrels, while distillates were off 300,000. Refineries operated at 85.9% of capacity, up 0.1 percentage point from the previous week.

The falloff in crude was higher than expected. But, “We're seeing demand for gasoline start to improve,” said Phil Flynn, of Alaron Trading. “That was a green shoot in the [EIA] numbers. That offset the bearishness from the other side of the report.” Over the last four weeks, motor gasoline demand has averaged nearly 9.3 million barrels per day, up by 1.1% from the same period last year, the EIA said.

And, “We can't dismiss that options expiration had something to do with it as well,” Flynn added concerning Wednesday's action. Nymex July crude options expired yesterday.

Base Metals

The base metals all posted modest gains on Wednesday. Copper rode the rollercoaster, climbing to the late pre-dawn hours, falling steeply to the New York open, then rising just as sharply and, when all was said and done, adding less than a penny, to $2.2506/lb. Nickel peaked in the late pre-dawn hours, traded very choppily through the day, and ended little changed at $6.7275/lb., up a penny and three-quarters. Zinc’s chart was similar to nickel's, with a finish at $0.6951/lb., up a half-cent. Aluminum had a good day, rising to close at its intraday high of $0.7244/lb., up more than a penny and three-quarters, while lead was a bit higher at $0.7486/lb., up two-thirds of a cent.

Copper highlighted a day in which there were strong price moves in both directions, but little change in the end, as an early prolongation of the recent correction was arrested by the declining dollar.

“Ultimately the market got ahead of itself, using commodities as a hedge. Copper's failure to react strongly to dollar weakness suggests an investor focus on weaker fundamentals,” said Bart Melek, of BMO Nesbitt Burns in Toronto.

Melek added that, “China is not enough to sustain a longer-term price rally. We need to see rest of the world show improvement.”

Stockpiles continued their long swoon, however, with copper inventories monitored by the LME falling by 1,875 metric tons yesterday, to 283,175 tons. The rapid pace of decline may have slowed recently, but the trend appears intact.

On the aluminum front, Bloomberg reported that “aluminum inventories monitored by the London Metal Exchange are locked into financial arrangements that make the supplies inaccessible to users, according to Alcoa Inc.’s Greg Wittbecker.

“The metal is tied up in so-called cash-and-carry trades … [and the] deals have tightened the market, Wittbecker said.

“ ‘At least 75 percent of the inventories are being held in long-term deals’ lasting from 90 days to a year, Wittbecker said. ‘I don’t think any metal is tied up for longer than a year.’

“Aluminum stockpiles in warehouses monitored by the LME have surged 87 percent to a record 4.36 million metric tons this year as demand slumped. Alcoa, based in New York, is the world’s biggest producer of the metal used in packaging, buildings, aircraft and automobiles.”

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


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