Good morning ...

Precious Metals

Finally, it was hold onto your hat time with gold yesterday, as it started advancing after the mid-point of London trading and really achieved lift-off when New York opened, rising virtually without pause through both the NYMEX and Globex to finish at $916.80/oz., up $31.50. Overnight, gold has continued to edge higher.

Platinum ran as high as $2080 early in New York, bounced off $2042 on the subsequent retreat, then rose again to settle at $2053/oz., up $50. Overnight, platinum has been flat.

Not to be outdone, silver spiked to $17.43 in the first minutes of the New York day and, though it came well off that high, closed a very strong day at $17.14/oz., up 40 cents. Overnight, silver is trending higher.

It was the perfect storm for the precious metals yesterday, with the dollar sinking after the Fed's lack of strong anti-inflation rhetoric, oil reaching new heights, and the equities markets getting hammered. No wonder investors were making a panicked flight to quality, pushing gold to its biggest gains in two years.

Mostly, analysts were talking Fed, Fed, Fed, as the FOMC made its choice between the rock and the hard place.

The Fed said that inflation is a major concern, but they're not going to do anything about it, which made gold go ballistic, said Leonard Kaplan, of Prospector Asset Management in Evanston, Illinois. The dollar is going to get slammed again.

Patrick Chidley, an analyst at Barnard Jacobs Mellet in Stamford, Connecticut, added that, The Fed seems to have decided to protect growth by holding rates low and to accept the fact that this period of inflation is inevitable and unstoppable ... Inflation is the lesser of two evils. Investors will increase their positions in gold, and it's likely to continue upward.

In addition, Large fund and individual speculators buying off of [Wednesday's] sell-off were the order of the day, according to Zachary Oxman, of Wisdom Financial.

Fading the commodity dips has been the trade this year, and this is another example of just that, he added. 'Fading' merely means buying on a dips and selling when prices go up.

What next? I would look for some follow-through above $930 in the next few days, said Amaury Conti, head trader at Austin, Calvert & Flavin in San Antonio, Texas. Then, If that holds, I think a retest of the previous highs is possible.

Currencies and Economic News

In the currency market, the dollar slipped further against the euro. Late Thursday, the euro was trading at $1.5757 vs. $1.5683 on Wednesday.

As with the metals, analysts were talking Fed yesterday. The current dollar decline reflects an adjustment in traders' expectations towards U.S. interest rates after the [Fed] policy statement added a phrase describing the 'downside risks to growth', while making a clear upgrade in its inflation alert, said Ashraf Laidi, chief foreign exchange strategist at CMC Markets.

Despite the Fed's explicit recognition of higher inflation in the statement, we consider this language largely a rhetorical shift aimed at managing interest rate and currency market expectations rather than setting up for an actual rate hike, Laidi added.

Most seemed to concur with that, as futures traders scaled back bets on a rate increase in the next three months. Interest-rate futures now reflect a 29% chance the Fed will keep borrowing costs at 2% in September, compared with just a 2% chance a week ago.

The Commerce Department released its final figures on growth and inflation for the first quarter yesterday, pegging GDP at a 1% annual growth rate and core CPI at 2.3%. The former was a 0.1% upward revision, the latter 0.2% higher than originally thought.

And the National Association of Realtors said re-sales of homes and condos inched up by 2% from April to May, slightly below expectations. But the median sales price was down 6.3% in May, year over year.


In the energy market Thursday, crude for August delivery traded above $140 before easing a bit to close at a record $139.64/barrel, up $5.09. July reformulated gasoline rose 11.7 cents, to $3.5113/gallon.

Oil bulls abounded after the Fed decision and subsequent fall in the dollar. Crude oil is unlikely to face a major correction without a major bottom in the dollar or large cut in global demand, said Thomas Hartmann, of Altavest Worldwide Trading. Inflation appears on track to get 'out of control' before the situation improves.

Kevin Kerr, editor of Global Resources Trader, said simply: $150 is now very likely.

Adding gasoline to the fire, so to speak, was a comment by Algerian Energy Minister Chakib Khelil, president of OPEC, who said oil prices could jump as high as $150 to $170 dollars a barrel this summer, although he does think it will fall short of $200 a barrel, thanks a bunch.

Nor was Libya any help, as it threatened to cut oil output because of a potential U.S. raid on its assets under the law that allows terror victims to seize assets of foreign governments as compensation.

Base Metals

The base metals were mostly in the black on Thursday. Copper peaked at $3.91 around mid-morning and, although it fell off from there, still finished in positive territory at $3.8827/lb., up nearly a penny and a half. Nickel tried hard to have a good day, but was eventually pulled down into the red, closing near its intraday low at $9.722/lb., down 7 1/2 cents. Zinc was up all day and, though it came off its highs, ended at $0.8695/lb., up 3 1/2 cents. Aluminum traded very jaggedly but with a slight up bias that left it at $1.3763/lb., up a bit more than a penny, while lead finally found some mild buying interest, adding a little better than three-quarters of a cent, to $0.8116/lb.

Copper edged higher for the first time this week, in the aftermath of a FOMC meeting that suggested a potentially growth-choking interest rate hike may not be in the cards after all.

The main change following the FOMC meeting, therefore, seems to be the weaker dollar ... and the metals, both base and precious, are up as a result, said BaseMetals.Com analyst William Adams.

Concurring, Edward Meir of MF Global said that the buck failed badly in the aftermath of the Fed decision late yesterday, thus setting up the stage for today's advance in copper.

Despite that the Fed said it would act as needed to promote economic recovery while trying to keep prices stable-i.e., it might still raise rates-traders focused on the here and now, where the maintenance of lower borrowing costs weakens the dollar and spurs demand from those who see commodities as a store of value.

Summing up, There's increasing uncertainty about inflation and the geopolitical situation, said Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. The Fed is behind the curve on inflation. All of this just makes people want to own actual, tangible stuff that they can store, sell or barter.

The industrial metals also benefited from a broad-based rally that saw the Reuters/Jefferies CRB Index of 19 commodities jump 2.4% to a record mark of 463.03. The index is up nearly 30% so far this year.

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


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