Good morning …

Precious Metals

Gold had a day of wild sentiment swings to little ultimate effect on Tuesday, originally drifting lower in the far East, spiking sharply in early London trading to its intraday high of $932, falling to the noon hour in New York, rallying back to the end of the Comex, and finally selling off again on the Globex to finish at $924.10/oz., down 80 cents. Overnight, gold has slipped lower.

Platinum traded between $1130 and $1150 from Hong Kong through the New York day, eventually settling near the low end of the range at $1133/oz., down $11. Overnight, platinum is sharply lower.

Silver bumped up to $13.35 just before New York opened, but that was all she wrote as the metal drifted lower pretty steadily through the day, just coming off its intraday lows late in the Globex to close at $13.09/oz., down 16 cents. Overnight, silver is unchanged.

It was a pretty blah day, as early strength in all of the precious metals waned as the day wore on, but the results were not a surprise, as there was broad-based selling among both equities and commodities, while crude retreated again and the dollar pushed higher.

Gold’s rally “was tempered by lack of physical demand from the jewelry trade, the Indian imports due to new duty, and the liquidating mode of the markets,” said George Gero, of RBC Capital Markets, covering many of the bases.

In the present market, even among normal gold bugs, optimism is hard to come by. “While the dollar is likely to provide further direction in the short term, we still see gold at risk to further pockets of liquidation from stale longs,” said James Moore, of TheBullionDesk.com.

Moore believes we could see the metal fall below $915/oz. and, at the other end, gold is “seen as capped by resistance up near and beyond the $940 area at the moment,” according to Kitco’s Jon Nadler.

What to watch for out of Washington was suggested by Obama financial advisor Laura D’Andrea Tyson. Though stressing that these were her views and not the administration’s, Tyson said in a speech in Singapore that February’s $787 billion stimulus plan was “a bit too small,” because “the economy is worse than we forecast.”

She thinks that more money should be allocated to transportation infrastructure, conceding that additional government spending raises concerns that “the U.S. will have to inflate away its debt.”

However, “I do not think that is a valid concern,” Tyson said. “The Federal Reserve is not going to let the U.S. government inflate away its debt.”

Currencies and Economic News

In the currency market, the dollar moved higher again against the euro. Late Tuesday, the euro was trading at $1.3918 vs. $1.3986 on Monday.

The buck has been benefiting lately from weak world equity markets, as investors begin to exhibit greater risk aversion.

The euro got an initial boost as the Economy Ministry in Berlin said German factory orders expanded 4.4% in April. That marked the biggest advance in two years for the zone’s largest economy, but its influence petered out quickly.

A lack of clear direction could be ongoing. “The markets are looking very indecisive at this point,” said T.J. Marta, chief strategist at Marta on the Markets. “It could be the exhaustion of investors and traders, having just priced in -- and then out -- financial Armageddon. It could also be the cross currents of data, as investors are barraged by conflicting reports.”

There is also caution ahead of the G-8 summit, commencing today in Italy. It’s expected that the meeting will feature renewed debate over whether the U.S. dollar should be replaced as the world's reserve currency.

The issue isn't specifically on the agenda for G8 leaders, but officials from Russia and elsewhere have said it will be discussed.

Prefiguring the tone of the discussion, Kremlin aide Arkady Dvorkovich said that, “China and Russia will state their stance that the global currency system needs smooth evolutionary development and this is connected with the creation of several regional reserve currencies, which may then become international.”

Energy

In the energy market on Tuesday, crude for August delivery prolonged its slide, closing at $62.93/barrel, down $1.12. August reformulated gasoline lost a penny, to $1.73/gallon.

Economic worries seem to have firmly established themselves at the driver of the moment. “The market got way ahead of itself with hopes that the [global economic] recovery would be quick,” said Zachary Oxman, managing director at TrendMax Futures.

“I think the dips you are seeing now are preceding the next big down move in stocks and commodities as well,” Oxman added. “I'd be net short, with a trading bias to the short side.”

Another bear is Edward Meir, of MF Global, who wrote that, “Despite the string of declines hitting the crude-oil markets of late, we do not think the current selling bout is over just yet … The markets remain vulnerable to a poor fundamental backdrop, typified by high stocks and lackluster demand.”

And in noise out of D.C., the Commodities Futures Trading Commission says it will hold hearings in July and August on whether to limit investor positions in commodities, particularly crude oil, heating oil, natural gas and other energy products. The CFTC is targeting investments from exchange-traded funds and index investors.

Base Metals

The base metals were mostly lower on Tuesday. Copper had rallied from the late pre-dawn hours to mid-morning, pushing past $2.27, but then fell off sharply to noon before edging a bit higher late to finish at $2.2114, down almost 2 cents. Nickel followed a similar path, closing just off its intraday lows at $7.0322/lb., down 17 cents. Zinc didn’t come as far off its morning highs, and ended at $0.6987/lb., up more than three-quarters of a cent. Aluminum was little changed, shedding a quarter-cent, to $0.7153/lb., while lead also dropped a bit, losing a third of a cent, to $0.7518/lb.

Copper led most of the industrial metals lower yesterday, as an early rally was snuffed out by economic jitters.

“It's a bit of hesitation we're seeing today,” said Robin Bhar, senior metals analyst at Calyon. “Prices seem to have stalled in both equity and commodity markets ... as this (economic) recovery hasn't come through perhaps as quickly as everyone has wanted.”

And that has led to “some doubts as to whether growth is beginning to peter out,” Bhar added.

The early positive action was likely driven by the German manufacturing orders report, but that was not enough in the end for the metals to hold their gains.

After two days of advances, stockpiles reversed field abruptly and decisively yesterday. Inventories monitored by the LME fell 3,250 metric tons yesterday, to 265,925 tons.

Many observers are concerned that copper faces downward pressures as we enter a traditionally quiet trading period during which Chinese demand will ebb. UBS analysts wrote that copper imports by China may plunge 64% in the second half after record shipments earlier this year built up stocks.

The world’s largest consumer of the metal may cut refined copper imports to around 100,000 metric tons a month in July to December, from an average of 280,000 tons in the first five months, UBS speculated. It also estimated that China may have stockpiled 500,000 to 700,000 tons of copper in excess of its industrial needs in the first quarter.

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


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