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Precious Metals

Gold was steady to the end of Hong Kong trading on Monday, fell sharply from there to mid-morning in New York, dropping below $920, but then posted modest gains through the rest of the day, finishing at $922.60/oz., down $11.10. Overnight, gold is unchanged.

Platinum had a dismal day, falling from the far East pretty steadily all the way through the day, ending barely off its intraday lows at $1160/oz., down $45. Overnight, platinum has edged higher.

Silver was down in Hong Kong, down more in London, leveled off until the last half hour of the Comex, fell off again, and finally went flat on the Globex to close at $13.70/oz., down 49 cents. Overnight, silver is trending higher.

After a couple of days of little movement late last week, the precious metals got slammed as the new week opened, with silver and platinum taking particularly heavy hits.

It was perhaps not an unexpected development, as the dollar pushed higher while just about everything else sold off, including the equities markets, crude, and the industrial metals.

Gold was also hurt as the World Bank forecast a deeper contraction in the global economy this year, lessening the metal's historic appeal as a hedge against inflation.

Concerns about inflation have abated for the time being, wrote John Gross, of metal-industry consultant J-E Gross in Rhode Island, as he turned quite pessimistic. Gold is now testing the May low at $900, with a more important test shaping up at $860, he said.

Added Alexander Zumpfe, a precious-metals trader at Hanau, Germany-based Heraeus Metallhandels GmbH, There is no new money flowing in ... Physical investors are not buying at current levels. Prices are stabilizing.

As for silver, its appeal as an industrial metal falls with gloomy forecasts such as the World Bank's, and investors have to pick up the slack. And lately, Silver-price momentum has been driven by strong investor interest, wrote Suki Cooper, a Barclays Capital analyst in London.

However, Cooper wrote, If positive sentiment starts to fade, prices could come under significant downward pressure. Consumption in the key U.S. market shows little sign of improving in the near term.

Currencies and Economic News

In the currency market, the dollar rallied against the euro. Late Monday, the euro was trading at $1.3864 vs. $1.3952 on Friday.

Traders fled to the perceived safe haven of the USD after the World Bank predicted yesterday that the global economy will shrink 2.9% this year. That's a much steeper drop than the 1.7% contraction it projected in March..

The bank warned that international capital will continue to flow out of developing nations, with international capital flows projected to fall to $363 billion in 2009 from their peak of $1.2 trillion in 2007.

Eyes are now on the FOMC, which meets on Wednesday. The debate now is how do we take back the quantitative easing without being disruptive to a recovery, said Dan Janis, a global fixed-income portfolio manager at MFC Global.

The market completely ignored a stronger-than-expected rise in Germany's closely-watched monthly business climate index from the Munich-based Ifo Institute.

The index rose to 85.9 in June from a revised reading of 84.3 in May, whereas economists had been expecting a more modest rise to 85.3.

It was, however, good news, as the survey results confirm that the German economy is gradually stabilizing, said Ifo President Hans-Werner Sinn.

Energy

In the energy market on Monday, crude for July delivery plummeted on its last day as the front-month contract, closing at $66.93/barrel, down $2.62. July reformulated gasoline dropped 6.47 cents, to $1.8597/gallon.

Like other commodities, crude was hit hard by the World Bank forecast. And contracts' last days are often more volatile.

Last week's drop in gasoline prices is also having an impact [on crude], said Kevin Kerr, president of Kerr Trading International. If we see the dollar be able to hold support here, we may see oil prices weaken further, [but] of course the opposite is true should the dollar fall apart.

This could be the beginning of the pullback many have been calling for, for quite some time. The outlook remains challenging in light of weak demand and high spare production capacity, wrote analysts at Credit Suisse.

On the supply front, over the weekend Nigerian rebels from the Movement for the Emancipation of the Niger Delta claimed they staged three attacks against facilities of Royal Dutch Shell. However, a Shell spokesman confirmed only two attacks and said that production was not seriously affected.

Base Metals

The base metals were all mired deep in the red on Monday. Copper sank slowly through the late pre-dawn hours, then faster through the New York day before just coming off its lows late to finish at $2.1387/lb., down 10 cents. Nickel followed a similar track, but ended at its intraday low of $6.4932/lb., down 26 1/4 cents. Zinc also took a steep tumble, closing at $0.6625/lb., down almost 3 1/4 cents Aluminum was very weak, shedding nearly 4 cents, to $0.7017/lb., while lead rounded out the down day by dropping 2 3/4 cents, to $0.753/lb.

Copper led the industrial metals lower, falling to its lowest level since late May, as the metal was hit hard by the strengthening dollar and fears that the recent Chinese buying spree may be coming to an end.

The Chinese may have to take a breather from buying physical copper as aggressively as they had up until now, said Mike Frawley, global head of metals with Newedge Financial in New York.

They have been the driver of this uptrend and if they curtail some of their buying interest, this set-back we are seeing now is not surprising at all, Frawley added.

Shanghai copper dipped after the release of May's trade data due to the concerns that record shipments will exacerbate China's domestic surplus, wrote at HNA Topwin Futures Co.

Copper inventories monitored by the Shanghai exchange rose last week to the highest in almost 22 months, the exchange said after the close of market on Friday. And China's refined copper imports stood at 337,230 tons last month, up 6% from April, the customs office said yesterday.

Despite imports which set records for the fourth straight month in May, apparent consumption in China fell 3.5% from April as stockpiles swelled, putting downward pressure on the Shanghai price.

Providing further evidence of weakened demand, data from the International Copper Study Group (ICSG) showed the world copper market in a 48,000-metric ton surplus during the first quarter of 2009.

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



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