Good morning …

Precious Metals

Gold had a very dull day on Friday, rising from Hong Kong through to the first hour in New York, peaking at $948, then getting sold off to the noon hour, where it bottomed at $937, then going essentially flat to the finish at $939.00/oz., up all of 10 cents. For the week, gold tacked on just over half a percent.

Platinum pushed as high as $1210 in European trading, but fell gently from there to the noon hour, before leveling off the rest of the day to end at $1197/oz., up $12. For the week, platinum dropped a third of a percent.

Silver rose from the far East to the open in New York, topping out at $14.30, then also declined to the noon hour and went still, creeping to a close at $14.07/oz., up 8 cents. For the week, silver lost eight-tenths of a percent.

It could hardly have been a more blah day, not to mention a blah week, for the precious metals.

One might have expected better on a day of declining dollar value, but crude also fell and, with month’s and quarter’s end rapidly approaching, it’s about time for portfolio managers to perform their acts of legerdemain known as re-balancing. So you can expect just about anything to happen.

James Moore, of TheBullionDesk.com, wrote that “given the scale of longs already in place and the slow pace of physical demand, gold is still vulnerable to profit taking short-term and may look to consolidate in the $910 to $950 area before pushing towards $1000 again”

Still, gold managed to notch its first weekly gain in the past four, as at least some investors, confronted with the weak dollar, record-low interest rates, and declining equities showed a preference for the historic storehouse of value.

Currencies and Economic News

In the currency market, the dollar lost some more ground to the euro. Late Friday, the euro was trading at $1.4068 vs. $1.3991 on Thursday.

China took center stage as Marketwatch.com reported that “the People's Bank of China's annual financial stability report repeated an earlier call by central bank chief Zhou Xiaochuan for the development of a new super-sovereign currency that would largely take the place of the dollar...

“The Chinese central bank's comments come after Chinese government officials had played down concerns over the dollar's reserve-currency role following a visit to China by U.S. Treasury Secretary Timothy Geithner earlier this month.

“ ‘There may be signs here of tensions mounting between the PBOC's economic concerns over China's holdings of dollars and the Chinese government's diplomatic reasons’ for toning down their criticism, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

“The central bank is ‘still clearly worried about the longer-term opportunity cost of holding dollars -- in as much as it can cite the dollar's role in the global economy as one of the main reasons for the financial crisis -- while the Chinese government is still more happy to play to the tune of the Bernanke-Geithner camp which sees leaning against the wind in order to protect the U.S. dollar as a necessary evil,’ he said.”

The day’s hard number was from the Commerce Department, which said U.S. personal incomes jumped 1.4% in May due to the one-time stimulus checks, leading the savings rate to jump to a 15-year high.

But all Sal Guatieri, an economist for BMO Capital Markets, had to say to that was: “Personal tax cuts and government income support have brought consumers back from the dead, but the recuperation period promises to be a lengthy one.”

Energy

In the energy market on Friday, crude for August delivery slipped, closing at $69.16/barrel, down $1.07. July reformulated gasoline lost 2.42 cents, to $1.8741/gallon.

Crude wrapped up its second straight week of decline, as traders seem to have turned sour on the prospects of recovering global demand. For the month, however, oil is still up more than 3%.

“The latest oil price increase to over $70 a barrel is not justified by current fundamentals, [although] it cannot be ignored that the oil market has improved,” wrote analysts at Commerzbank. “The underlying demand remains week.”

In a potentially positive development the Movement for the Emancipation of the Niger Delta, or MEND, say they are studying an amnesty offer announced by Nigerian President Umaru Yar'Adua, but will turn in their heavy weapons by the August 4th deadline stipulated in the document.

The group, however, objects to the term “amnesty,” saying that, “We are not criminals. Amnesty is offered to criminals and people that have been convicted. We are fighting for our rights, carrying guns fighting to protect our fathers’ land. What we are suffering from is marginalization, slavery, oppression. We accept the peace, and are ready to lay down our arms, so the amnesty itself is just a mix of language.”

In the natgas arena, the fuel continued its forward and back movement, posting a loss on the week, with July futures shedding 2% to finish at $3.949 per million British thermal units.

Base Metals

The base metals were nearly all in the red on Friday. Copper was in the green until just after the New York open, then plummeted to the noon hour, before rising a bit late in the day to finish at $2.2724/lb., down 2 3/4 cents. Nickel rose until mid-morning and, though it sold off from there, still managed a positive close at $7.0949/lb., up more than 6 1/2 cents. Zinc was flat until mid-morning, but fell off to end at $0.704/lb., down 2 1/4 cents. Aluminum fell for most of the day, dropping a penny and a third, to $0.7312/lb., while lead was modestly lower, shedding about a penny, to $0.7667/lb.

Copper led the bulk of the industrial metals lower, as the slide in equities weighed on the sector, along with investor profit-taking that could be prolonged into early next week as both the month and the quarter come to an end, with their attendant portfolio re-balancing to come.

With, in addition, prices at “over-extended levels,” Zachary Oxman, managing director with TrendMax Futures in Encinitas, California, sees the “downward price pitch to extend down toward $2.18-$2.20 support in the coming week.”

As to what lies ahead, one might hope there’d be more agreement, but there isn’t.

“There is no doubt we have seen the bottom in terms of the industrial cycle,” said Dan Smith, a Standard Chartered analyst in London. “The investor inflows into the complex have been pretty strong. People continue to believe in the commodity story as a long-term investment play.”

On the other hand, “I think weaker demand and continuing production from mines is going to push prices down over the summer,” said Charles Kernot, an analyst at Evolution Securities.

Kernot said that while hopes for an economic recovery may lend some support to copper, he expects this support will fade once data starts revealing a slowdown in Chinese imports.

And he believes income gains will have only a temporary effect on the economy. “Personal income is only going up because of the fiscal impetus,” he said, “so personal income will come down again and we can assume the savings rate will carry on up because of huge debt. That's bad news as far as the recovery and any increase in metals demand is concerned.”

That’s what’s happening … have a great weekend and see you Tuesday!


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