Good morning …

Precious Metals

Gold was quiet until the mid-point of London trading on Wednesday, but then commenced a long, steady decline that didn’t bottom until about 1 p.m. in New York, at which point it bounced off of $905 and inched a bit higher through the Globex to finish at $909.10/oz., down $15.00. Overnight, gold is edging higher.

Platinum spent most of the day between $1100 and $1120, but slipped below the former mark late in Comex trading and didn’t recover, ending at $1097/oz., down $35. Overnight, platinum is sharply higher.

Silver followed gold’s path almost perfectly, falling as low as $12.75 before regaining a little upward momentum late in the day to close at $12.85/oz., down 24 cents. Overnight, silver is little changed.

After little change on Tuesday, traders handed the precious metals a pummeling yesterday, with all three suffering significant setbacks and gold plumbing a two-month low.

There really wasn’t anything to prop up the market, with equities spinning their wheels, the dollar reaping the benefits of a flight from currencies perceived as riskier, and crude prolonging its losing streak.

Continuing to weigh on gold and silver was this week’s announcement from India that it is doubling import taxes on both metals as the government seeks to use its citizens’ affinity for them to raise money. The move could certainly put a lid on India's gold imports and pressure gold prices.

Gold’s recent weakness has “gold bulls on the defensive,” said Ralph Preston, a Heritage West Futures commodity analyst in San Diego. “I have a very specific trade recommendation to short the gold market on today’s break of $915 support.”

Preston is advising clients to short gold “at $912 with an $8 stop-loss at $920,” with “a price objective of $870, risk $8, for a potential profit of $42.”

Looking at yesterday’s trend numbers, Dan Norcini, writing on jsmineset.com, said that “gold broke down technically in today’s session once it pushed past the $920 level and downside momentum carried it even lower to violate the $915 level. With today’s move it is now solidly below all of the major moving averages with the short term trend firmly in favor of the bears. The broad consolidation pattern of the last 5 months shows support near the $890 level followed by more substantial support near $880. Those will have to hold to prevent a rout of the longs that could conceivably take it down as low as $865. It will take very strong buying from overseas to offset the speculative selling that has now arisen. It did seem to uncover some buying of a value nature just above $900 in today’s session.”

Currencies and Economic News

In the currency market, the dollar moved higher once again against the euro. Late Wednesday, the euro was trading at $1.3882 vs. $1.3918 on Tuesday.

The yen and pound also sagged. “Fear, trepidation, use any term you like to describe the market bias today, but one thing is for sure, the term 'safe haven' is back en vogue,” said Dan Cook, of IG Markets..

Traders were keeping a close eye on the G-8 summit that opened yesterday in Italy. But most analysts believe that the policy makers of the biggest economies will focus on ending the global recession, and improving credit and trade, instead of debating the status of the buck.

“Any discussion about the U.S. dollar's reserve status being challenged has been heavily played down in recent days and draft communiques that have been leaked indicate no reference to this issue,” said Christian Lawrence, rates and foreign-exchange strategist at RBC Capital Markets.

That could affirm the resignation on the part of Chinese officials and others who may have concluded, albeit reluctantly, that a fall in the dollar would be too self-defeating for those holding large dollar reserves.

“There seems to be a recognition among a growing number of administrations that it would be better to avoid a fresh slide in the U.S. dollar from here,” wrote Simon Derrick, chief currency strategist at Bank of New York Mellon.

Energy

In the energy market on Wednesday, crude for August delivery accelerated its slide, closing at $60.14/barrel, down $2.79. August reformulated gasoline lost 9.95 cents, to $1.6333/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stocks fell by 2.9 million barrels in the week ended July 3, slightly less than anticipated. gasoline supplies rose 1.9 million barrels, and distillates were up 3.7 million barrels. Refineries were operating at 86.8% of capacity last week, vs. the previous week's 87%.

There were no great surprises in the report. However, there was an uptick in crude inventories at Cushing, Okla. -- the delivery point for crude futures traded on the New York Mercantile Exchange. They jumped to 30.2 million barrels last week, up 5.6%, which added a bit of pressure to futures prices.

Summing up, “The market is adjusting itself,” said Michael Fitzpatrick, of MF Global. “In the past few weeks, there was a lot of wishful thinking that the economy will recover. Now people realize there is no evidence of any sustainable economic growth.”

Base Metals

The base metals were all dripping red and plenty of it on Wednesday. Copper held steady until just before the New York open, then pitched forward on its face, with a slight late push off its intraday lows leading to a finish at $2.1411, down 7 cents. Nickel followed exactly the same path, plummeting below the $7 mark to close at $6.7018/lb., down 33 cents. Zinc was also beaten down, ending at $0.6745/lb., down nearly 2 1/2 cents. Aluminum took a severe pounding, shedding 2 2/3 cents, to $0.6881/lb., while lead plunged, losing more than 2 1/2 cents, to $0.726/lb.

Copper led the industrial metals’ swoon yesterday, reaching a fresh two-week low, as grim projections for the global economy put traders in a sour mood.

The global economy will contract by 1.4% this year, a much deeper cut than that forecast in April, and a sustained recovery may be a year away, the International Monetary Fund said yesterday.

Global economic growth will rebound to 2.5% next year, the IMF said, but noted that a “sustained pickup in activity” won’t occur in the world’s advanced economies until the second half of 2010.

In addition, there was nothing positive out of the G-8 summit, and eurozone figures were awful, with the regional economy skidding 2.5% in the first three months of this year from the 4Q08. That was the steepest decline since record-keeping for the zone began in 1995.

“There's a lot of anxiety again about the recovery,” said Matthew Zeman, of LaSalle Futures Group in Chicago. “Some of the most recent data has been pretty disappointing and we are in the slow season for copper as well, so a lot of that talk we heard several weeks ago about 'green shoots' have turned brown, so to speak.”

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


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