Good morning ...
Gold was slightly lower until the open of the New York session on Thursday, but went vertical at that point, adding $20 in an hour and peaking at $908 before easing during the rest of the NYMEX and dropping further in the Globex to fall back below $900 and finish at $898.00/oz., up only $4.40. Overnight, gold is trending higher.
Platinum pushed past $2090 in Hong Kong, but that was its high for the day, as it sold off whenever a rally began and ended near its intraday low at $2041/oz., down $42. Overnight, platinum has edged higher.
Silver followed gold's chart almost exactly, peaking around the same time at $17.72, then declining to close at $17.32/oz., down a penny. Overnight, silver has been pushing higher.
Although they ended up with not much to show for it, it was a pretty good day for the precious metals, considering that the equities markets turned around, the price of crude plummeted, and the dollar edged slightly higher.
Gold battled the headwinds blowing against it because, In the medium to long term, the combination of strong international safe-haven demand and decreasing production and supply of gold in most major producers, and particularly in South Africa, will likely result in gold going significantly higher in the coming months, said Mark O'Byrne, of Gold and Silver Investments Ltd.
The production falloff in South Africa is precipitous, O'Byrne said. South African gold output in April fell more than 10% in volume terms, compared with a year earlier ... [Further,] South African production of gold was over 1,000 tonnes per annum in 1970 and has been steadily declining to nearly 250 tonnes per annum today.
Output has fallen sharply after state-owned power utility Eskom struggled to provide sufficient power to mines, O'Byrne said. And, Eskom have admitted that the power and electricity problems are a major challenge and may take years to rectify, which would likely result in further falls in gold production in South Africa.
Peter Spina, of GoldSeek.com, believes gold is a tightly coiling spring. With oil now solidly above $100, gold should easily be above the four-figures mark, Spina said. The longer the oil price stays above the $100 level, the more appealing gold will become and the investment buying will support the gold price during this traditionally weak seasonal period.
Overall, Pressures are building within the gold and silver complex, this may be another pop higher followed by consolidation, but I expect one of these rallies to gain traction and ignite the next leg higher in the gold price, Spina wrote. It could be well underway by summer's end.
Currencies and Economic News
In the currency market, the dollar edged higher against the euro. Late Thursday, the euro was trading at $1.5503 vs. $1.5525 on Wednesday.
The buck garnered some support after the Labor Department said applications for first-time jobless benefits dropped to a two-week low of 381,000 for the week ended June 14.
However, that drop was tempered by a two-month high in the four-week average of initial claims. That number, which tends to smooth out one-time anomalies, ticked upwards, to 375,250, last week.
The average is at a new cycle high, noted Ian Shepherdson of High Frequency Economics. This is recession territory, at least if the experience of 2001 is a guide, Shepherdson wrote.
In early March 2001 -- the first month of the last recession -- the eight-week average of claims was just 362,000, lower than it is now, and it rose rapidly thereafter. The pace of layoffs is now quite high, with no prospect of any reversal or even a leveling-off in the near future, wrote Shepherdson.
The number of persons continuing to collect unemployment benefits fell back to 3.06 million in the week ended June 7, a drop of 76,000. Although it's at the lowest level since April, it still far exceeds the year-ago mark of 2.52 million.
In the energy market Thursday, crude for July delivery plummeted, closing at $131.93/barrel, down $4.75. July reformulated gasoline plunged 11.4 cents, to $3.3526/gallon.
Market participants shrugged off supply threat news from Nigeria. Royal Dutch Shell reported that it had shut in production at its main offshore oil field after an attack by boat by local militants. The Shell platform produces 200,000 barrels a day.
Instead traders focused on a decision by China's National Development and Reform Commission to raise gasoline, diesel and jet-fuel prices by 17, 18 and 25%, respectively.
This follows the trend of other Asian countries reducing government fuel subsidies, which should, over time, put a dent in demand, said analysts at Action Economics.
However, Sean Brodrick, a natural resources analyst for MoneyandMarkets.com, wrote that oil bears and stock bulls alike are seizing on this news from China like drowning men grasping at lifelines ... [but] I hope they can live with disappointment.
Upping China's gasoline and diesel prices by 46 cents a gallon, is probably not enough to have much impact on existing demand, Brodrick said.
The base metals were mixed on Thursday. Copper sank during the pre-dawn hours but took off during the first hour of New York trading, before easing later in the day and finishing at $3.8466/lb., up 2 1/4 cents. Nickel prolonged Wednesday's slide, briefly falling below $10 before recovering to close at $10.0259/lb., down 39 2/3 cents. Zinc was off during the pre-dawn hours and never recovered much, ending at $0.8586/lb., down 2 1/4 cents. Aluminum was down for most of the day, but edged back to wind up essentially unchanged at $1.3794/lb., while lead sagged through the whole day, eventually shedding 3 1/4 cents, to $0.8051/lb.
Copper held up, on a mostly down day for the industrial metals, due to the labor unrest in Peru. A strike at Southern Copper's Cuajone mine in Moquegua province has severely curtailed output, while the company's Ilo smelter will have to close soon if supplies can't get through roadblocks in the area. Strikes and protests have also broken out at other mines in Peru.
In addition, Norddeutsche Affinerie, Europe's largest copper producer, said that China may have recently responded to high prices by selling part of its strategic copper stocks. That would account for diminished Chinese import demand for the metal in recent months.
Meanwhile, nickel oversupply grew in April to the widest in eight months as demand receded for the third month in a row, according to the International Nickel Study Group.
Supply exceeded demand by 13,700 metric tons in April, the INSG report said. Production increased 6.1%, year over year, while consumption was 112,800 tons, off 0.9% from March.
Zinc struggled as stockpiles of the metal jumped to a 21-month high. Inventories monitored by the LME rose 5.8% yesterday, to 152,175 tons, the highest level since September 20, 2006.
Zinc production outpaced demand by 64,000 tons in the first four months of this year, the World Bureau of Metal Statistics said.
Lower zinc prices have led to production cutbacks at smelters in China, according to researcher CBI China Co. The average operating capacity of the country's 28 largest zinc smelters dropped from 83 to 78% in May year over year, CBI China said.
That's what's happening ... see you tomorrow!
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