Good morning ...

Precious Metals

Gold had another strong day yesterday, bottoming at $910 in the far East, then lifting slowly but steadily higher through London and the NYMEX, only easing slightly in the Globex to finish at $926.80/oz., up $10.00. For the week, gold was up 2.9%.

Platinum was less successful, falling from its high in Europe and never quite making it back to positive territory, ending at $2042/oz., down $11. For the week, platinum fell less than half a percent.

Silver followed gold fairly closely, pushing past $17.60 before pulling back in the afternoon to close at $17.48/oz., up 34 cents. For the week, silver was up eight-tenths of one percent.

Even though platinum failed to follow suit, chalk it up as another banner day for the precious metals yesterday.

With the equities markets sinking again, the dollar slipping on the second day after the Fed's lack of anti-inflation rhetoric, and crude oil punching to record heights, the stage was set for a prolongation of Thursday's rally, and gold and silver surely disappointed few.

There seems to be no end to the capitulation taking place in the equities markets which should provide all the fuel necessary for a breakout in gold, said Dale Doelling, chief market technician at Trends In Commodities. He predicts gold prices will breach $940 on Monday.

Fear of the unknown is what's driving these markets, Doelling added. Will recession lead to stagflation or, even worse, will deflation lead to depression? Either scenario will create serious havoc and help to accelerate the unraveling of financial markets.

Ned Schmidt, editor of the Value View Gold Report sought to temper the optimism in the market now, saying that, The mania in paper oil is in full control ... [but] gold investors should step aside during this paper-oil induced move ... Both paper oil and gold will face serious corrections some time in the second half of the year.

But Jim Sinclair of, was far less cautious. The price of gold will find resistance at the high $950s, he wrote, and again at the major round number of $1000. The opposition at the latter level will have more gusto.

The second try on $1000 will be followed by a modest reaction. After this reaction, a third attempt will see the price of gold burst upwards through $1000. The pull from the $1200 magnet is irresistible and will be accomplished in 2008.

All else is noise, Sinclair concluded.

Currencies and Economic News

In the currency market, the dollar slipped further against the euro. Late Friday, the euro was trading at $1.5789 vs. $1.5757 on Thursday.

Traders were very reluctant to buy the greenback in the light of skidding equities and soaring oil.

The buck was also undermined by a Commerce Department report showing that the closely-watched PCE core inflation rate, which excludes food and energy, rose only 0.1% in May.

That was in line with expectations, but suggests that inflation may not be coming down as hard as anticipated, and that therefore the Fed will not be quick to raise interest rates to support the dollar.

In addition, consumer spending rose 0.8% in May, the most since November. Economists' expectations were for a 0.6% gain.

But many analysts pooh poohed that. Spending was nothing special given all the help from rebates, wrote Robert Brusca, chief economist for FAO Economics.

And Nigel Gault, chief U.S. economist for Global Insight, wrote that, The worry is that after the stimulus relief fades away, the consumer will still be faced with the same underlying problems.


In the energy market Friday, crude for August delivery skied to an alltime high of nearly $143 in electronic trading, but had a NYMEX close of $140.21/barrel, up 57 cents. But July reformulated gasoline fell by a penny, to $3.5012/gallon.

It has been a volatile week for the crude-oil market, but one cannot put one specific reason for the historic record-price level that was traded this morning, said John Person, of the National Futures Advisory Service. We have the perfect storm.

Tensions in Nigeria, the Middle East, talk that OPEC members actually want to lower production, weather concerns, a weaker dollar, the Fed's inability to raise rates to contain inflation are all factors, Person wrote.

Also, Technically we broke out of a trading range, and speculators jumped back on board to help push the market higher in early-hour trading, he added.

Speculators were coming out of the woodwork, but Edward Meir, of MF Global, sounded a cautionary note, saying that, commodity bulls should be careful what they wish for -- equities can fall only so far before investors turn their focus to the fact that a global recession may be at hand. And that would serve to dampen any rally in crude.

Base Metals

The base metals were mixed on Friday. Copper rose from the pre-dawn hours pretty much straight through the day, only easing slightly late to finish at $3.94/lb., up 5 3/4 cents. Nickel was flat to slightly lower for most of the day, closing at $9.6706/lb., down more than 5 cents. Zinc traded extremely choppily but with a down bias that left it at $0.8553/lb., down almost a penny and a half. Aluminum had its ups and downs but ended at $1.3888/lb., up a penny and a quarter, while lead gave back Thursday's gains, sinking to its intraday low of $0.7927/lb., off nearly two cents.

Copper was underpinned by a congruence of supportive factors, including the weaker dollar, falling stockpiles and potential labor problems in Peru.

On the supply front, copper inventories monitored by the LME sank by 150 metric tons, to 122,900 tons on Friday. They're now down nearly 40% since the start of the year. At the same time, inventories monitored by the Shanghai Futures Exchange fell 3%, to 32,401 tons, for the week that ended Thursday.

We have very low inventories at a time when inflation concerns are increasing demand, said John Gross, of Scott Brass Inc. in Cranston, Rhode Island. It looks like the market will keep moving higher.

Down south, Peruvian miners plan to move ahead with a national, indefinite strike, beginning on Monday. The country's federation of mining unions has delayed the start of its strike twice this year to give Congress more time to discuss a bill that would lift caps on profit-sharing in the industry.

Although the government of Peruvian President Alan Garcia has expressed support for the bill, congressional leaders have not yet been able to pull the trigger, leading a union spokesperson to say that, This is not going to happen unless we protest and put pressure on.

Mining unions in Peru went on strike twice last year trying to limit non-union jobs in the sector and gain for workers a greater share of windfall profits. The strikes reduced output and boosted international prices. Peru is the world`s second leading producer of copper.

And further south, Chile's state-owned mining giant, Codelco, says that it will try to maintain 2007 output levels through 2008 despite a strike earlier this year.

That's what's happening ... have a great weekend and see you Tuesday!


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