Good morning …

Precious Metals

Gold fell below $915 at the mid-point of Hong Kong trading on Tuesday, but that proved to be the low for the day, as the metal rallied from there to the New York open, went flat until mid-morning, when it sold off again, but then pushed higher to the end of the Comex before leveling off through the Globex to finish at $925.80/oz., up $3.20. Overnight, gold has been pushing higher.

Platinum followed up Monday’s beating with a dead flat day, as it never strayed from the $1150-1170 range and ended in the middle at $1159/oz., down a buck. Overnight, platinum is trending higher.

Silver traced out almost exactly the same path as gold, closing at $13.81/oz., up 11 cents. Overnight, silver is sharply higher.

Monday’s debacle was likely fresh in traders’ minds as the precious metals limped home with modest gains in the case of gold and silver, unchanged for platinum.

That had to be disappointing to the metals’ fanciers as the dollar, which has been a primary inverse driver for the sector, plummeted against the euro. In addition, rising oil prices should have been supportive. But buyers just failed to appear.

Analysts said investors were simply being cautious ahead of today’s monetary policy statement from the Fed.

“I would be surprised if they did anything dramatic. The Fed is trying to nurse the recovery along without killing off the housing market again. In terms of gold, it keeps the uncertainty up there a bit. That keeps a floor (under prices),” said Michael Wallace, global market strategist at Action Economics.

However, Wallace added, “in the bigger picture, we may see a saucer-shaped recovery, which helps keep a lid on prices.”

Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, slipped to 36.37 million ounces on Monday, from 36.4 million. It was the first decline in 11 sessions.

And while platinum continues to languish on a perceived fundamental weakness, John Reade, of UBS in London, wrote that, “We still like platinum’s fundamental demand drivers more than those of gold,” making it even more attractive as an investment.

Currencies and Economic News

In the currency market, the dollar was hammered against the euro. Late Tuesday, the euro was trading at $1.4089 vs. $1.3864 on Monday.

“The stock market and the broader green shoots rally appeared to have lost some momentum last week,” said Michael Woolfolk, of the Bank of New York Mellon. “But it appears that risk aversion is off the table for the time being and players are looking to the FOMC meeting …”

At the conclusion of its meeting today, the FOMC is almost universally expected to leave its fed funds rate target in a range of 0% to 0.25%. However, investors will be watching to see whether the central bank makes any changes to its Treasury and mortgage asset-purchase program, with an eye toward further boosting liquidity.

Also on traders’ radar are the U.S. Treasury Department's three big note sales this week, says Dan Cook, of IG Markets. “It will be important to watch how well these auctions are subscribed by indirect bidders -- a category that includes foreign central banks,” Cook wrote. “Strong demand could bode well for a strong dollar as investors move back into dollar-denominated assets.”

The day’s only number was a National Association of Realtors report which said sales of existing homes rose only 2.4% in May, to an annual rate of 4.77 million units, from a downwardly revised 4.66 million pace in April. Economists had been looking for a 4.81 million-unit pace.

“Overall it's weaker than expected, but does show we're trying to carve out a bottom here. The foreclosure portion of sales is slowing down at least. One month's supply for single family homes is back down to the low for the year, so that's also a welcome sign. I don't know that it's a green shoot. It seems to be more of a stabilization in the housing market,” said Jacob Oubina, currency strategist with Forex.com.

Investors ignored a weaker-than-expected rise in the euro-zone purchasing managers index for June. The Markit euro-zone composite PMI rose to 44.4 in June from 44.0 in May, worse than a projected rise to 45.5. Anything under 50 indicates contraction.

Energy

In the energy market on Tuesday, crude for August delivery surged, closing at $69.24/barrel, up $1.74. July reformulated gasoline rose 3.35 cents, to $1.8932/gallon.

“Inventories expectations and the weak dollar are helping crude,” said Phil Flynn of Alaron Trading. Trading was “choppy with all the news that awaits us such as inventories and the Fed meeting.”

The Energy Information Administration will release its stockpile data this morning, with analysts expecting that U.S. commercial crude stocks will have dropped 1.2 million barrels, according Platts.

But fundamentalists are decrying the lock step inverse movement of crude and the dollar.

“The fundamentals don’t seem to matter,” said Bill O’Grady, the chief markets strategist at St. Louis-based Confluence Investment Management. “I can tell you what the oil market is going to do by just looking at the currency market.”

Base Metals

The base metals mostly posted green numbers on Tuesday. Copper rose from the pre-dawn hours to mid-morning in New York, dipped a bit, but then continued upward, finishing just off its intraday highs at $2.1851/lb., up 4 2/3 cents. Nickel traced a more jagged path, but in the end was also near its intraday highs at $6.6451/lb., up 15 1/4 cents. Zinc had a sharp morning drop, but rebounded to close at $0.6836/lb., up more than 2 cents. Aluminum moved slowly but steadily higher, eventually adding more than a penny, to $0.713/lb., while lead sounded the only sour note, dropping a penny and three-quarters, to $0.7357/lb.

Copper led most of the industrial metals higher, bouncing off of a 3-week low. “We’re seeing a snap-back in copper today in reaction to the weaker dollar,” said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. “The dollar has been a big factor for a lot of the commodities lately.”

Gains were probably capped somewhat, though, by the less-than-stellar housing report.

Analyst opinion largely remains cautious. As Bloomberg wrote: “Robin Bhar, an analyst at Credit Agricole SA’s Calyon unit in London, predicted prices for industrial metals will continue to decline, citing skepticism about the potential for a global economic rebound and the strength of demand from China.

“Copper … has climbed 57 percent this year as refined copper imports by China rose. The Asian nation, the world’s largest consumer of the metal, accounted for 38 percent of global copper demand in the first quarter, 11 percentage points more than a year earlier, Barclays Capital estimates.

“ ‘I sense disillusionment over the “green shoots” of recovery and concerns that China’s growth is now slowing,’ Bhar said by telephone [yesterday]. ‘We are probably a bit too high, given the demand and supply fundamentals that we are seeing’.”

China’s refined copper imports almost have to slow in the third quarter after setting records in May. Imports may drop to about 300,000 tons in Q3, said Yoshihiro Nishiyama, of Japan’s Pan Pacific Copper Co. That’s after imports of 748,281 tons in the first quarter and 655,177 tons just in April and May.

But London stockpile data continue to support copper. Inventories monitored by the LME declined another 1,325 metric tons yesterday, to 276,675 tons.

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


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