Good morning ...

Precious Metals

Gold was steady from the far East through the first half of London trading, holding at or near $905, but collapsed when the New York session opened, cratering more than $25 in the first hour before edging higher through the rest of the day and finishing at $883.70/oz., down $17.60 from Friday. Overnight, gold has been trending higher.

Platinum's decline was neither so steep nor so deep, as it ended at $2035/oz., down $16. Overnight, platinum has been flat.

Silver declined a bit more heading into the New York open, but its fall was equally fast and furious before it, too, rallied a bit into a close at $16.78/oz., down 54 cents. Overnight, silver has been pushing higher.

It was a ghastly day for the precious metals, especially considering that the market-moving forces were not all that strong, with the euro slipping less than a penny against the dollar.

Crude also factored in, with the price on the rise despite word out of the oil summit that the Saudis stand ready to increase production.

Traders are very wary at the moment, according to Julian Phillips of, who summarized the situation thusly:

The gold price was reacting only to the U.S. $ moves and on the smallest of moves. It ignored what was positive for gold, the Saudi Arabia meeting on oil, which did nothing to lower the oil price. However, it is very nervous on the smallest $ story now. Even the speculators lowered their exposure to precious metal moves last week, so there is an air of expectancy in the market now.

All the elements are in place for gold's next leg up, but until traders are fully convinced it's happening, they are going to be careful, and are likely to wait until the evidence is overwhelming that it's underway before jumping in with both feet.

Currencies and Economic News

In the currency market, the dollar rose against the euro. Late Monday, the euro was trading at $1.5525 vs. $1.5622 on Friday.

Traders were oblivious to weak domestic data that, as has been the case during recent straw-clutching days, wasn't as bad as it might have been.

As the Hightower Report commented, With the Dollar apparently springing to life in the wake of a slightly better than expected but negative Chicago Fed National Activity Index reading, it was clear that the macro economic bar among the world's leading economies was set very low. In other words, the Dollar only had to avoid a patently discouraging scheduled reading to gain the upper hand on Monday morning.

Instead, investors' attention was focused across the pond, where the closely-watched Ifo Institute's German business-sentiment index fell to 101.3 in June, its lowest level in more than two years.

Additionally, the RBS/Markit composite PMI reading-a purchasing-managers' index for the manufacturing and service sectors across the 15-nation eurozone-delineated a contraction in activity in June, dropping to 49.5 from a reading of 50.6 in May.

The data highlight the European Central Bank's dilemma, as it faces surging inflation at the same time that economic activity is less than robust. Doubts have surfaced that the ECB will be able to raise interest rates next month.

Although over the past two weeks nearly everyone at the ECB from President Trichet on down has echoed the common refrain that inflation remains too high necessitating further tightening, economic reality may temper any immediate plans to raise rates, wrote Boris Schlossberg, of Forex Capital Markets.


In the energy market Monday, crude for August delivery debuted as the front-month contract by pushing higher, closing at $136.74/barrel, up $1.38. July reformulated gasoline rose 1.6 cents, to $3.4551/gallon.

Traders were unimpressed by the results of the oil summit in Jeddah over the weekend, at which the Saudis said they would raise daily production by 200,000 barrels in July, on top of the increase of 300,000 barrels a day announced in May.

Kevin Kerr, president of Kerr Trading International, summarized sentiment by saying that, The meeting was little more than a slap in the face as to the U.S. and the rest of the world as 200,000 is next to nothing ... The fact remains that we can simply no longer have an oil policy that forces us to go beg for supply.

The Saudi commitment, said Anthony Sabino, a professor of law at St. John's University, is a general indication that OPEC realizes that prices are so high it will stanch the flow of petrodollars into their coffers, not to mention that a worldwide recession will depress demand for their only viable export.

Why do prices remain elevated? The market has so convinced itself that the spiral is never ending upwards, it won't allow itself to level off -- at least not yet, Sabino said.

That doesn't mean supply problems aren't real, as the Nigerian situation demonstrates. Militants there have shut down facilities belonging to both Shell and Chevron in recent days, despite declaring a unilateral ceasefire, which goes into effect today.

And, as warned: Also troubling is that Saudi Arabia does not produce the light sweet crude needed for gasoline which comes from politically unstable areas like Nigeria. The sour crude produced by Saudi Arabia needs more refining which isn't necessarily available or quickly solved due to the lengthy process of commissioning new plants. The prospect for more violence or even new wars in various parts of the world as well as the possibility for damaging hurricanes seem to be the most worrisome aspects for the market in the next few months.

Base Metals

The base metals were all in the red on Monday. Copper followed the precious metals down, falling off a cliff at the New York open, then trading sideways after the first hour and finishing at $3.8443/lb., down 5 1/4 cents from Friday. Nickel was the same, closing at its intraday low of $9.7628/lb., down more than 33 cents. Zinc ditto although it rallied slightly after the selloff to end at $0.8494/lb., down just under a penny. Aluminum wasn't hit as hard as the others, losing only two-tenths of a cent, to $1.3939/lb., while lead was off a bit less than a cent, to $0.8232/lb.

Copper was slammed down after touching a 5-week high in London trading.

Part of the problem is a perception that Chinese demand may be slowing for real. China's copper imports have fallen by 22.3% in the first five months of the year, to 611,306 tons, according to customs data released yesterday.

Despite the setback, copper remains within striking distance of its alltime highs, as the weak dollar encourages foreign purchases. Considering the equity market is in doom mode, this is a noteworthy performance and looks as though new highs may be set before too long in the leading metals, said analyst William Adams at

Meanwhile, aluminum touched a three-month high, and has appreciated 25% since the beginning of the year.

Aluminium prices have strengthened quite perceptibly, both on concerns about short-term power shortages, and in the long term on the economics of the industry with rising oil prices, said John Kemp, of RBS Sempra Metals.

Copper may struggle to make fresh highs, but aluminium is very likely to [reach them]. The near term trigger could be supply problems in China, which will underscore how fragile the power system is there.

Supply disruptions in India, Brazil, Australia and the United States have also helped support aluminum. In total we estimate one-million tonnes (2 percent) of production has been lost this year due directly or indirectly to power supply problems, Citigroup Global Markets analysts wrote.

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


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