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Precious Metals

Gold held in positive territory until the first hour of New York trading on Tuesday, then really hit the skids, plummeting nearly $20 by late morning before inching forward through the rest of the day, finally finishing at $926.60/oz., down $10.70. Overnight, gold has been trending higher.

Platinum had a nice peak just after New York opened, almost making it back past $1200, but its fall was even more precipitous, a nearly $35 plunge that took it all the way back to $1165 before a little later-day buying returned it to $1175/oz., down $8. Overnight, platinum has edged higher.

Silver pushed past $14.10 at the London open, but that was all she wrote, as it dropped slowly to mid-morning in New York, then crashed for fair, losing 50 cents in an hour’s time, before edging just a tad higher through the rest of the day and closing at $13.55/oz., down 29 cents. Overnight, silver has moved higher.

After several listless days in a row, the precious metals took a blow right to the chin yesterday. True, the usual suspects lined up against them, with the dollar strengthening a bit and crude dropping, but the magnitude of the selloff was out of proportion to the movement in those markets.

It’s likely that end of month and end of quarter fund re-balancing played a major role in the market action.

In addition, “Over the last month gold has suffered from a renewed appetite for risk,” said Brian Kelly, chief executive of Kanundrum Research. “The market is also adjusting to new inflationary expectations.”

And Dan Norcini, writing on jsmineset.com, found the whole day perplexing, writing that, “Last evening crude oil put on some sort of inexplicable price movement driving all the way to $73.38 in Asian trading on EXTREMELY HEAVY volume. Traders all across the globe were at a complete loss trying to figure out what was going on. Then as trading moved into the West, price began to retreat until it hit New York where it promptly collapsed over $2.00 a barrel all the way back down to $69.00.”

Norcini added that, “It did not help gold any today also for the grain market to get a very surprising bearish acreage report for corn. That took it limit down and pulled down wheat and even the beans along with it. With the grains moving sharply lower and the energy sector getting pulverized, gold had little chance of moving higher especially with the dollar once again miraculously managing to move higher (must be that cap and trade bill which will be so helpful to the average American consumer).”

Currencies and Economic News

In the currency market, the dollar was higher against the euro. Late Tuesday, the euro was trading at $1.4032 vs. $1.4078 on Monday.

The dollar posted its modest gain on not much, as the data of the day was decidedly mixed.

First, the Case-Shiller home price index in 20 selected cities fell 0.6% in April. But that was taken as a positive by the it-coulda-been-worse crowd, since it compared favorably with compared with the 2.2% decline in March.

David Blitzer, chairman of the index committee, turned the upbeat knob, saying that, “Thirteen of the 20 metro areas also saw improvement in their annual return compared to that of March. Furthermore, every metro area, except for Charlotte, recorded an improvement in monthly returns … While one month's data cannot determine if a turnaround has begun; it seems that some stabilization may be appearing in some of the regions.”

Next, manufacturing activity improved in the Chicago region in June, with the Chicago purchasing managers index rising to 39.9% in June from 34.9% in May. Of course, readings below 50% still indicate overall business contraction.

Finally, the Conference Board said that its consumer confidence index abruptly reversed course, falling to 49.3 in June from a slightly downwardly revised 54.8 in May. Economists had been looking for a bump up to 55.5.

“The decline in the present situation index, caused by a less favorable assessment of business conditions and employment, continues to imply that economic conditions, while not as weak as earlier this year, are nonetheless weak,” said Lynn Franco, director of the Board's Consumer Research Center.

Energy

In the energy market on Tuesday, crude for August delivery fell off, closing at $69.89/barrel, down $1.60. July reformulated gasoline lost nearly 4 cents, to $1.8972/gallon.

The quarter ended with a net gain of 41% for crude. It was the biggest three-month advance since Saddam Hussein's invasion of Kuwait in the third quarter of 1990.

Analyzing the day’s action, Phil Flynn, of Alaron Trading, said that, “All of the rising demand expectations got doused with the number on falling consumer confidence … This is key ahead of the big Fourth of July holiday as it increases fears that people will stay home instead of travel.”

Also weighing was that the U.K. GDP decreased 2.4% in the first quarter from 4Q08, the Office for National Statistics said in London, rather worse than forecasts for a slippage of only 2.1%.

With a holiday weekend looming, analysts have little in the way of prediction going forward. Typical was Stephen Schork, of the Schork Group Inc. of Villanova, Pa., who said that, “Once we come back from the holiday on Monday, it will be a whole new game … Price is high and demand is low. Attention may shift to the fundamentals.”

Base Metals

The base metals were all seeing red on Tuesday. Copper held in positive territory until mid-morning, then capsized, sinking to the noon hour, before then righting the ship and adding a little back to finish at $2.2556/lb., down 5 1/3 cents. Nickel held up a bit longer than copper, but it too nosedived in the late morning, falling below the $7 mark to close at $6.9188/lb., down more than 18 cents. Zinc plummeted as well, but it pared its losses late, ending at $0.6852/lb., down three-quarters of a cent. Aluminum was modestly lower, dropping just over a half-cent, to $0.7221/lb., while lead completed the down day, shedding nearly a penny, to $0.7607/lb.

Copper led the industrial metals lower yesterday, falling the most in a week as Monday’s optimism faded. Traders noted the decline in consumer confidence and the modest selloff in the dollar, and concluded that the ‘green shoots’ may still be stunted.

“A lot of people think that the dollar can go even higher now, and that happening when fundamentals are still weak leaves copper vulnerable,” said Matthew Zeman, a LaSalle Futures Group trader in Chicago. “I wouldn’t be surprised to see a pretty hefty correction in copper.”

Also factoring in was the normal re-balancing that happens this time of year. As Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida put it, “Copper succumbs to broader losses in the commodity complex as funds unload at the end of the second quarter.”

Gross also chipped in with a technical analysis, saying that there is a “classic head and shoulders top formation in the copper market right now. A combination of fund selling and a strong technical set-up could mean further price correction.”

And a fundamentalist agreed. “From a fundamental point of view, copper is fully priced during this stage of the economic cycle,” said Neil Buxton, managing director at London-based GFMS Metals Consulting Ltd.

Stockpile data was, however, supportive, as inventories monitored by the LME declined another 1,350 metric tons yesterday, to 265,950 metric tons.

And Chile, the world’s leading copper producer, said production fell off 2.3% in May, year over year.

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


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