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Precious Metals

Gold was quiet until the last hour before the open of the New York session on Wednesday, at which point it pushed higher, stalled and fell into the noon hour, but then rallied strongly through the rest of the day to finish just off its intraday high at $893.60/oz., up $9.70. Overnight, gold is trending lower.

Platinum poked through $2100 just after the NYMEX open and, though it declined from that peak, still added $30 on the day, to $2083/oz. Overnight, platinum is sharply lower.

Silver shot upward right at the New York open, rising to a peak of $17.46 and, though it sold off into the noon hour, rallied again in the afternoon to close at $17.33/oz., up 31 cents. Overnight, silver has fallen off.

It was a very good day for the precious metals, as the equities markets sank, the price of crude recovered, and the dollar edged slightly lower.

That gold didn't do better might have been a slight concern, but significant declines in equities are always a two-edged sword, spurring a flight to quality on the one hand, but forcing asset sales to cover losses on the other.

Traders are focusing on the dollar.

The odds of rate increases have gone down, said Matt Zeman, of LaSalle Futures Group in Chicago. We're still losing jobs, and housing is incapable of turning around. The dollar has very limited upside potential.

Financial futures markets are now showing a scant 12% chance the Fed will raise the benchmark interest rate by 0.25 percentage point to 2.25 percent next week, compared with a 26% chance on Tuesday.

Kitco's Jon Nadler isn't expecting much of note to happen before the Fed confers.

Nadler wrote that, aside from short-term fund plays following various economic or geopolitical news items, the bulk of would-be players remained sidelined ahead of next week's Fed meeting.

James Moore, of concurs that the choppy trade looks set to continue, but warns that gold has been showing some signs of fatigue and may look to test he bottom of the current $850-$920 range.

However, given the ongoing concerns over the health of the U.S. economy and rising inflation gauges globally, gold at $850 represents a buying opportunity for the longer-term investor, Moore wrote.

Currencies and Economic News

In the currency market, the dollar was off marginally against the euro. Late Wednesday, the euro was trading at $1.5525 vs. $1.5511 on Tuesday.

With weak economic numbers slamming Wall Street stocks, traders were forced to reconsider whether the Fed will be able to raise interest rates in any significant way this year, boosting the buck.

The FOMC meets next Tuesday and Wednesday, with little expectation that it will make any move on rates this time around.

The futures market has backed off of longer-term rate projections, as well as next week's. Traders currently see a 52% chance that the Fed will hike rates to 2.25% at the Fed's next meeting in August, well down from the 91% likelihood priced in on Monday.

Across the pond, the euro got a lift from remarks by Luxembourg Central Bank President Yves Mersch, who is also a member of the European Central Bank's rate-setting governing council.

We expect that interest rates will remain at historically high levels, probably until the end of this year, Mersch said. On the possibility of a hike in July, Mersch said the ECB remains in a state of elevated alert over inflation risks.


In the energy market Wednesday, crude for July delivery came roaring back from its one-week low, closing at $136.68/barrel, up $2.67. July reformulated gasoline rose 4.9 cents, to $3.4667/gallon.

In its weekly inventory report, the Energy Department said that crude stocks dropped by 1.2 million barrels for the week ended June 13, bringing losses to 24.8 million barrels over the past five weeks.

Energy also reported that gasoline supplies fell 1.2 million barrels and distillate stocks were up by 2.6 million barrels. Refinery utilization climbed to 89.3% of capacity, compared with 88.6% of capacity a week earlier.

Crude-oil stocks remain low but that is good coming into the Saudi meeting of producers and consumers this weekend, wrote James Williams, of WTRG Economics. It increases the chance that the Saudis will put even more oil on the market.

Gasoline demand [down 1.6%, year over year] remains weak as income growth has decelerated and prices hover near record highs, said Chris Lafakis, of Moody's Consumers have lost some of their willingness and ability to purchase gasoline.

Refinery capacity utilization will most likely fall in next week's report, as signs of slowing gasoline demand have depressed the crack spread, the difference between the price of crude and the refined product, Lafakis said.

Base Metals

The base metals were mostly higher on Wednesday. Copper blasted higher from the pre-dawn hours straight through the day, finishing at its intraday high of $3.8239/lb., up 10 1/3 cents. Nickel blipped above the $11 mark in the pre-dawn hours, but sagged from there, closing at $10.4236/lb., down 38 2/3 cents. Zinc forged ahead with few setbacks through the day, ending at $0.8805/lb., up better than 5 cents. Aluminum had a strong day, adding 2 1/3 cents, to $1.3798/lb., while lead was sharply higher until mid-morning but then plunged, winding up little changed at $0.8378/lb., up less than two-tenths of a cent.

Copper rose as the Peruvian labor unrest continued, and traders began to worry about stockpile levels even as inventories monitored by the LME rose by 350 metric tons yesterday, to 123,900 tons.

A strike that started on Tuesday is greatly affecting output at Southern Copper's Cuajone mine, according to company officials. Cuajone produced 148,936 tonnes of the red metal last year.

That strike comes on top of a week-long road blockade in Peru's Moquegua province that has the potential to cut into output at Southern Copper's Ilo smelter.

However, the rally may be temporary, analysts warn.

Overall the tone in the metals is still one of caution, BaseMetals.Com analyst William Adams said, the economic data is mixed, but the market is focused on a deteriorating economic outlook and the summer slowdown. In light of these, rallies are likely to struggle unless either the dollar weakens or there are further supply disruptions.

In company news, BHP Billiton will file with Chinese competition authorities for its planned $170 billion takeover of Rio Tinto, the company said yesterday.

We'll be filing with regulators in China later this month, a spokesman said, adding that BHP also plans to file in Japan, Taiwan and Korea at a later date.

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


First Majestic Silver Corp is committed to building a senior silver-producing mining company based on an aggressive acquisition and development plan with a focus on Mexico.

The Company presently owns or operates three silver mines in Mexico: The La Parrilla Silver Mine; The San Martin Silver Mine and the La Encantada Silver Mine. Annual production from these three mines is anticipated to be 5 million ounces.

Learn more about First Majestic.

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