Good morning ...

Precious Metals

Gold got taken down from the far East through to the New York open yesterday, bottoming at $932, but rose slowly and steadily through the NYMEX and Globex to finish at $945.30/oz., up $5.60. Overnight, gold has edged lower.

Platinum continued to trade tightly rangebound, staying inside $2050-2070 all day, and ending near the low end at $2055/oz., down $10. Overnight, platinum has slipped lower.

Silver's decline was shorter and less pronounced than gold's, as it bounced off of $17.90 an hour before New York opened and began to climb, eventually reaching $18.40 before easing slightly to close at $18.37/oz., up 28 cents. Overnight, silver has been flat.

Once again platinum spun its wheels, but both gold and silver followed Tuesday's gains with another strong day yesterday.

The usual suspects did their part yesterday, as oil pushed to new highs and the dollar continued to slide.

But perhaps labor issues played in. As the Hightower Report wrote: July silver pushed above yesterday's highs and was threatening the May 26th high of 18.375 by the end of the session. In addition to finding support from outside market forces like the weak dollar and soaring commodity prices which make silver an attractive alternative investment, the growing number of mines going out on strike also lent support. Reports that workers at two more mines in Peru threatened to go out on strike lent support as well. While the latest struck mines primarily produce copper, zinc and gold, the strike action in general appears to be spreading across all types of mines, which implies silver could be affected as well. Peru is the world largest producer of silver.

Of gold, Kitco's Jon Nadler wrote that, Another stab at the $947 to $950 zone could be in the cards, barring a selling bout in oil, or the opposite in the dollar.

Nadler added that, Bullion remains fairly well-supported near the $920 and $930 marks at the moment, as participants factor in a small ECB rate hike ... and little in the way of a Fed response to inflationary pressures in the near term.

Meanwhile, platinum and palladium have been struggling, especially in the wake of the plunge in U.S. auto sales in June.

The noble metal cannot ignore the scary numbers coming from auto dealer lots in the U.S. -- the worst in a decade, Nadler wrote. Every car not sold could eventually result in a car not produced and a few less grams of platinum, palladium, rhodium not taken from the market.

Currencies and Economic News

In the currency market, the dollar hit the skids against the euro. Late Wednesday, the euro was trading at $1.588 vs. $1.578 on Tuesday.

Traders essentially shrugged off a June factory orders report that came in better than expected at a 0.6% gain vs. economists' projections for a rise of 0.5%.

Instead the focus was on jobs. Perhaps foreshadowing today's June payrolls report from the Bureau of Labor Statistics, the ADP employment index indicated that private-sector firms in the U.S. lost 79,000 jobs last month.

That's the biggest drop in nearly six years and it doesn't bode well for an interest rate hike from the Fed anytime soon. Combine that with an anticipated rate hike from the ECB today, and you have a predictable scurrying of dollar bulls for cover.

Boris Schlossberg, of, fears for the worst today. Because the ADP index has been consistently more positive than actual figures, the fact that today's numbers were so bad really shocked the market, he said.

Meanwhile ECB President Jean-Claude Trichet left himself little wiggle room by saying that, We central banks have a big responsibility ... If we're not decisive, there's a risk of inflation exploding. If we act in a decisive way, we can master the situation.


In the energy market Wednesday, crude for August delivery jumped again, setting yet another alltime closing high at $143.57 up $2.60. July reformulated gasoline tacked on 3.6 cents, to $3.5494/gallon.

The action came as the Energy Information Administration, in its weekly inventory report, said that crude stockpiles declined by 2 million barrels for the week ended June 27. It was the sixth weekly drop in the past seven and puts stocks near the lower boundary of the average range for this time of year, the EIA wrote.

Gasoline supplies, however, rose 2.1 million barrels, and distillates were up 1.3 million. Refineries were operating at 89.2% of capacity vs. 88.6% the previous week.

Despite the increase, refinery capacity utilization should be well over 90% at this time of year, wrote Chris Lafakis, of Moody's The fact that it is not is a testament to a razor-thin crack spread [the refinery's margin] that has been depressed by heretofore exceptionally weak gasoline demand.

Demand for motor gasoline over the past four weeks averaged 9.3 million barrels per day, down 1.7% from the same time a year ago, the EIA reported.

Base Metals

The base metals were strikingly divergent on Wednesday. Copper was down until mid-morning, but then it was off to the races, as it roared to finish at its intraday high of $4.1046/lb., up more than 11 3/4 cents. Nickel also rebounded from its mid-morning low, but not enough to reach positive territory as it closed at $9.5459/lb., down 13 2/3 cents. Zinc was well down from its pre-dawn highs, ending at $0.8316/lb., down a penny and three-quarters. Aluminum went ballistic, surging to a new alltime high of $1.4341/lb., up 2 2/3 cents, but lead remained unloved and unwanted, shedding another penny and three-quarters, to $0.7657/lb.

Copper blasted past the key psychological $4 barrier, and landed within kissing distance of its alltime high, as traders responded to the oil crunch, labor unrest in Peru, and factory orders that suggest demand may begin to pick up.

As the $4 mark has been a strong resistance level for so long, breaching it unleashed a torrent of stop/loss orders, as short sellers scrambled to cover their trades.

The Peruvian situation is provoking a lot of worry, even though it has yet to cause major disruptions, as it appears to be worsening.

Miners at Peru's largest copper-zinc pit, Antamina, owned by BHP Billiton, are on strike, but a company official said its effect on production was minimal. Southern Copper's Cuajone mine and Ilo smelter are also struck, but output has been largely unaffected.

However, workers at Freeport McMoRan's Cerro Verde copper pit, Peru's third largest, approved plans to strike, pending approval of a second assembly. Other miners are reportedly about to join in, as well.

The possibility of violence is high. The Peruvian government has declared the walkout illegal, and in response miners in hard hats marched defiantly through the streets of Lima yesterday.

Meanwhile, lead fell to a 16-month low as inventories monitored by the LME continued to rise, indicating a building surplus to Michael Widmer, a London analyst with Lehman Brothers. One important reason is seasonally weak demand, Widmer said. The market looks relatively well supplied at the moment.

And zinc, suffering its biggest intraday loss since mid-June, is facing the same oversupply problem, Widmer said.

That's what's happening ... with the markets closed tomorrow, we're going to change schedule for this week, and post our next column first thing Monday morning. We wish our American readers a safe and glorious Fourth. Take a little time to remember what the day means, and see you back here on Monday!


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