Good morning …

Precious Metals

Gold was near flat until the New York open on Wednesday, at which point it took off, shooting up $15 to $941, but that proved to be the high for the day, as the metal sold off through the Comex and early Globex before leveling off to finish at $931.00/oz., up $4.20. Overnight, gold is little changed.

Platinum was tightly rangebound, spending most of the day between $1160 and $1170, before dipping a little to end at $1158/oz., down a buck. Overnight, platinum is sharply higher.

Silver went on a wild rollercoaster ride, spiking up to $14.10 in early Comex trading, then hitting the same price again before falling precipitously into the afternoon, rallying and selling off one more time to finally close after all that virtually unchanged at $13.83/oz., up 2 cents. Overnight, silver has been flat.

With platinum near unchanged for the second straight day yesterday, gold and silver carried the ball, trying gamely to push higher, but to little avail, as rallies were killed and they finished with only very modest gains.

Any marked improvement in the metals’ prices were likely capped by a rally in the dollar and sliding oil prices.

The Hightower Report wrote of the day’s action in silver: “The silver market showed some positive early action in the wake of a better than expected US durable goods reading and perhaps because of the stellar bullish leadership provided by the gold market in the morning action. Like gold, the silver market didn't seem to be that interested in an initial upward bias in the US Dollar and that would seem to suggest that something other than classic currency related issues were serving to lift precious metals prices on Wednesday morning. However, a late surge in the Dollar clearly undermined gold and silver prices and that in turn virtually erased the very favorable technical action initially forged by the markets on Wednesday morning.”

Meanwhile, “Gold continues to be focused on the idea that ‘inflation will remain subdued’,” said Ralph Preston, of Heritage West Futures San Diego. And technically speaking, since gold failed to surpass key resistance at $944.40 an ounce yesterday, “prices are capped and poised to test $912 support. A push below $912 projects trending price action below $900.”

And, “What is it about the U.S. dollar that has ‘prevented’ the materialization of fresh all-time highs in bullion?” asked Kitco’s Jon Nadler. “The rather banal explanation is the fact that the world is lacking for better alternatives.”

Currencies and Economic News

In the currency market, the dollar gained ground on the euro. Late Wednesday, the euro was trading at $1.3926 vs. $1.4089 on Tuesday.

The news of the day was, of course, the FOMC meeting, at which the Fed did the expected and left interest rates alone. The committee’s accompanying statement on the economy was upbeat, saying that the downturn is slowing and deflation is no longer a big threat. Inflation, it said, is likely to remain subdued for some time.

In addition, it did not announce any changes in its current plans to buy Treasurys and mortgage-backed assets to lower the interest rates and boost the economy.

Among the day’s hard numbers, the Commerce Department announced a better-than-expected 1.8% increase in durable-goods orders in May. Economists had been forecasting a 0.4% drop.

However, shipments of durable goods fell 2.1% in May. They are now down 19.3% in the first five months of the year compared with a year earlier, and have fallen for ten consecutive months.

Separately, Commerce said that sales of new homes dropped 0.6% to a seasonally adjusted annual rate of 342,000 in May from a downwardly revised 344,000 in April. Seasonally adjusted sales have been essentially flat since January, when they dropped to a postwar record low of 329,000. The report was weaker than expected, with economists projecting a slight increase to 363,000 annualized.

The report also said that sales are down 32.8% in the past year; inventories of unsold homes fell 2.3% in May to 292,000, representing a 10.2-month supply at the May sales rate; and median sales prices rose 4.2% in May, to $221,600, the first month-over-month increase since December.


In the energy market on Wednesday, crude for August delivery sank, closing at $68.67/barrel, down 57 cents. July reformulated gasoline lost 5 cents, to $1.843/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stockpiles fell 3.8 million barrels in the week ended June 19. That was three times analysts’ expectations for a decline of only 1.2 million barrels.

Gasoline supplies went in the other direction, increasing by 3.9 million barrels last week, while distillates rose by 2.1 million barrels. Refineries were operating at 87.1% of capacity, up from 85.9% the previous week, and the highest level since early December.

While the supply data was mixed, said Tariq Zahir, managing member at Tyche Capital Advisors, we do feel both the crude and gasoline markets could see a downward correction in the next few weeks as demand is looking weak.

But since “crude-oil stocks went down as much as gasoline stocks increased … This report could set up a battle between the bulls and the bears,” said James Williams, of WTRG Economics.

Base Metals

The base metals were all glowing green on Wednesday. Copper rose from the pre-dawn hours to just after noon in New York, then eased for the rest of the day, finishing at $2.2554/lb., up 7 cents. Nickel followed copper’s path exactly, ending at $6.9324/lb., up 28 3/4 cents. Zinc was roughly similar, closing at $0.7108/lb., up 2 3/4 cents. Aluminum was strongly higher, adding nearly 2 cents, to $0.7312/lb., while lead had a very good day, tacking on 2 1/2 cents, to $0.7606/lb.

Copper led the industrial metals sharply higher as, according to Bloomberg, “the Organization for Economic Cooperation and Development raised its growth forecast and U.S. durable-goods orders unexpectedly increased, boosting the demand outlook for the metal.

“The combined economy of the 30 OECD members will grow 0.7 percent in 2010, the group said today, raising its estimate for the first time in two years …

“ ‘The global economy has a good shot at a rebound,’ said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. ‘The big picture is looking good for copper’.”

Smith added that he expects demand from emerging economies including China and India to remain strong. “The sell-off was a temporary situation for copper and it was just a normal correction in a bull market,” he said.

Though the optimists were winning the daily war with the naysayers, the base metals’ upward trajectory abruptly came to an end with the release of the Fed’s cautionary statement.

However, if the Fed fails to convince investors it can control inflation “without snuffing out signs of a recovery by raising interest rates,” there may be “further money flow into commodities as an inflation hedge,” wrote Leon Westgate, of Standard Bank Group Ltd. in London.

On the stockpile front, copper inventories monitored by the LME declined another 1,225 metric tons yesterday, to 275,050 tons.

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


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