Good morning …

Precious Metals

Gold traded mostly sideways yesterday. Apart from a $10 jump up towards the end of Comex trading and then an equal slide down early on the Globex, it was a tame day. The yellow metal closed at $912.30/oz., up $3.20. Overnight, gold is trending lower.

Platinum took off late in Hong Kong yesterday, adding about $16. The rest of the day it trended slightly down to end at $1106/oz., up $9. Overnight, platinum is little changed.

Silver didn’t do much through Hong Kong, but started a roller coaster ride in London that lasted through the Globex only to end the day little changed at $12.82/oz., down 3 cents. Overnight, silver is trending lower.

“Summer inertia” has hit gold-market speculators according to Edel Tully at London dealers Mitsui.

We believe [the Gold Futures] market remains overly long and further liquidation desires remain in the wings. Until this passes, gold does not have another internal driver to force it northbound,” wrote Tully.

Official data seems to support Tully’s belief. The ‘net long’ position held by hedge funds and other speculative players in U.S. gold futures and options has shrunk by almost 20% from early June’s 11-month high.

But don’t expect the waning demand for gold to last too long.

“In the near term, day to day moves continue to be influenced by the direction the dollar takes,” Lin Haoxiang, analyst at Guotai Junan Securities, said from Shanghai yesterday. “In the longer term, inflationary expectations remain.”

In company specific news, Brazilian mining giant Vale has signed an agreement which could see it take a 60% stake in Australian gold junior Intrepid Mines.

In a statement, Intrepid welcomed the signing of the Heads of Agreement (HOA) with Vale Exploration, giving the company an option to acquire rights in Intrepid's Tujuh Bukit project in east Java.

Under the terms of the HOA, Vale could earn a 60% shareholding in a joint venture company holding the rights to the Tujuh Bukit project by, amongst other terms, spending a total of $US40 million ($A51.05 million), Intrepid said.

Intrepid shares were up nearly 13%, to 30.5 cents on the news.

Currencies and Economic News

In the currency market, the dollar fell against the euro. Late Thursday, the euro was trading at $1.4036 vs. $1.3882 on Wednesday.

The correlation between risk aversion and currencies has decreased over recent weeks. We continue to expect risk aversion to play an important role in driving currencies, but it will not be as dominant a factor as it has been over the past year, said analysts at Calyon.

Our expectations of improved risk appetite over the coming months point to further U.S. dollar weakness, they added in a research note.

On the economic front, it’s still looking pretty gloomy out there.

While first-time claims for state unemployment benefits fell in the latest weekly data (after seasonal adjustment) continuing claims hit a record high, the Labor Department reported yesterday.

The number of initial claims in the week ending July 4th fell 52,000 to 565,000 – the lowest level since January. But this is no reason to jump for joy.

The drop in initial claims is not a green shoot, forecasting a return to healthy economic growth, wrote Dan Greenhaus of the market strategy group at Miller Tabak in a research note.

We must not lose sight of the fact that 565,000 is an absolutely terrible reading for weekly claims and, in fact, the highest reading in the most recent recession was 517,000 following Sept. 11, Greenhaus wrote.

Thanks for putting things into perspective Mr. Greenhaus.

Energy

In the energy market, crude oil for August delivery rose 27 cents from Wednesday to close at $60.41/barrel. August reformulated gasoline gained more than 3 cents to finish at $1.6638/gallon.

As evidence of how screwed up things are out there, crude apparently got a boost from the Labor Department’s report mentioned above. So more than half a million new people filing for unemployment in a week is good news?

The jobs data and the dollar are helping oil today, said Phil Flynn, vice president at futures trading and research firm PFG BEST Research. But weak demand concerns are rising.

Meanwhile, crude inventories at Cushing, Okla. – the delivery point for crude futures traded on the New York Mercantile Exchange – jumped to 30.2 million barrels last week, up 5.6% and adding pressure to futures prices.

Also on the energy front, U.S. natural gas inventories rose 75 billion cubic feet in the week ended July 3rd to reach 2,796 billion cubic feet, the Energy Information Administration reported yesterday. Analysts at IHS Global Insight had expected an increase of 71 billion cubic feet.

At the current level, inventories were 601 billion cubic feet higher than last year at this time and 452 billion cubic feet above the five-year average.

Base Metals

Base metals were (mostly) slightly higher on Thursday. Copper gained 6.35 cents to close at $2.2069/lb. Nickel fell by nearly 2 cents to finish at $6.7139/lb. Zinc was little changed, ending at $0.6780/lb. Aluminum rose by nearly a cent, closing at $0.7014/lb., while lead moved to $0.7319/lb., up more than half a cent from the previous session.

Despite copper’s rise yesterday, there is renewed sentiment that Chinese demand (which boosted prices by more than half this year) will weaken as the slow seasonal consumption period approaches.

“The market is watching out for Chinese imports and stockpiles data and these will drive sentiment in the days ahead,” Jia Zheng, analyst at Southwest Futures Co., said yesterday.

“There is talk that around 100,000 tons of copper is making its way to LME warehouses in Asia in the next three weeks, and that is weighing a bit on sentiment,” said Jia.

China is expected to release preliminary trade data today or Monday, while weekly inventory data will be released by the Shanghai Futures Exchange after the market closes today.

In company specific news, BHP Billiton, the world’s largest mining company, will begin a study for the potential sale of its Ravensthorpe nickel operations in Australia after closing the $2.2 billion project in January.

“BHP Billiton has received numerous expressions of interest from third parties regarding a possible acquisition of Ravensthorpe and will further test the market through this process,” the company said. BHP intends to finish an options study on the future of Ravensthorpe by December 2009.

BHP closed the Ravensthorpe nickel mine in Western Australia after nickel prices plunged. It sold the Yabulu nickel refinery in Queensland earlier this month to Australian billionaire Clive Palmer for an undisclosed sum.

It’s also worth noting that a Chinese firm started work on a copper deposit in Afghanistan yesterday as part of a multi-billion dollar project and the first major foreign investment of its kind in the country’s history.

State-owned China Metallurgical Group Corp (CMGC) and China's top integrated copper producer Jiangxi Copper Co won a 2008 tender to explore and develop the vast Aynak Copper Mine south of the capital Kabul.

Aynak is thought to contain up to 13 million tonnes of copper and is regarded as one of the major ore bodies in the world.

The deposit was discovered in 1974 and surveyed by Soviet geologists in 1979, but has never been developed until now.

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


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