Good morning ...

Precious Metals

Gold traded mostly flat through Hong Kong, then developed a slight downward trend at the London open but reversed course when trading started on the Comex and managed to add back all the day's losses and a little more through the Globex close. The yellow metal closed at $913.00/oz., up $0.70. For the week, gold is down 1.7%.

Platinum fell off a cliff towards the end of trading in Hong Kong only to claw back when things got started in New York and end the day at $1105/oz., down $1. For the week, platinum is down 6.6%.

Silver traded flat through Hong Kong, then took a dive at the London open and that's where it stayed, ending at $12.65/oz., down 17 cents. For the week, silver is down 5.2%.

Many analysts attribute gold's slide over the week to a stronger dollar and lower oil prices, which curbed the metal's appeal as an alternative investment and inflation hedge.

Certainly the shock drop in oil has reminded people that inflation is not a big threat right now, said Standard Chartered Plc analyst Dan Smith. The correlation with the dollar is still pretty high.

Investment in GLD, the biggest exchange-traded fund backed by bullion, was unchanged at 1,109.81 metric tons on Friday. Holdings have fallen 22.34 metric tons over the past month.

The surplus that is mounting in the gold market puts the onus squarely on the back of investment demand, said Kitco Inc. senior analyst Jon Nadler. This market needs a global financial crisis instant-reply, and it needs it now.

Here's what The Hightower Report had to say about the recent action in gold: After an early attempt to bounce August gold washed out ahead of mid session but eventually the gold market managed to regain its footing and managed to make a new high for the trading session. It goes without saying that persistent strength in the Dollar was a pressuring force, but it also seemed as if renewed fears of slowing added into the initial weakness in gold prices. In fact, at times Friday morning, gold and other physical commodity markets were acting as if they were about to return to the deflationary environment. With the last scheduled US data point (Michigan sentiment readings) coming in weak and the key corporate earnings news of the day also pointing to discouraging conditions in the economy, the bear camp seemed to have a long list of issues in their court.

Currencies and Economic News

In the currency market, the dollar climbed against the euro. Late Friday, the euro was trading at $1.3935 vs. $1.4036 on Thursday.

Concerns about the global economic outlook curbed investor appetite for riskier assets, which made for a stronger dollar on Friday. But the greenback's gains were less than dramatic.

The dollar index, a measure of the greenback against a trade-weighted base of six major currencies, traded at 80.240 late on Friday, up a mere 0.45% from the day before.

It feels like we're already in the summer doldrums, said Caylon Bank currency strategist Daragh Maher.

Markets for now are hung up by uncertainty over the shape of any future economic recovery, he said. Economic data at this point can be spun either way, likely leaving currency markets next week to key off of any earnings surprises from U.S. companies.

In economic news, U.S. consumer sentiment fell sharply in early July, according to a survey released yesterday by the University of Michigan and Reuters, breaking a string of increases and underscoring the bleak state of the economy.

Sentiment fell almost 9% to 64.6 from June's 70.8 figure, much lower than the 70.5 level pegged in a MarketWatch survey of economists.

It was the softest reading for the widely followed confidence gauge since March.

This is an extremely weak report relative to what the market was expecting, though given the recent sour data hitting the markets this is not too surprising to see it filter through to overall sentiment measures, said Ian Pollick, economics strategist at TD Securities.

The trend remains that people are more confident about the present than they are the future, Pollick added.

Energy

In the energy market, crude oil for August delivery fell 52 cents from Thursday to close at $59.89/barrel. August reformulated gasoline lost 1.3 cents to finish at $1.6505/gallon.

Oil fell more than 10% this week as an International Energy Agency report reaffirmed concerns about weak demand.

Global oil demand is expected to stand at 83.8 million barrels a day this year, which reflects an annual contraction of 2.9%, the IEA said on Friday in its report. The demand contraction will come despite the massive stimulus provided by loosened fiscal and monetary policies worldwide, the report continued.

The IEA also said it remains skeptical regarding the much-trumpeted expectations for a strong demand rebound in the second half of 2009, even if China exceeds expectations.

The importance of China regarding global oil demand growth, albeit significant, should not be overplayed, the agency said.

The IEA does expect demand to grow in 2010, but only by 1.7% (or 1.4 million barrels of oil a day) to 85.2 million barrels a day.

Base Metals

Base metals were in the red on Friday, but just barely. Copper fell 0.11 cents to close at $2.2058/lb. Nickel dropped more than 11 cents to finish at $6.6013/lb. Zinc declined by a little more than a penny, ending at $0.6657/lb. Aluminum lost one-third of a cent, closing at $0.6979/lb., while lead moved to $0.7175/lb., down about a penny and a half from the previous session.

Bloomberg reported yesterday that China's imports of copper and its products rose to a record in June, advancing 13% from the previous month, as investment growth buoyed demand in the world's largest consumer.

Imports increased to 475,999 metric tons last months, according to preliminary data released by the Beijing-based customs office yesterday. Imports were 422,666 tons in May, according to Bloomberg data.

China's manufacturing expanded for a fourth month in June as a 4 trillion yuan ($585 billion) stimulus plan and record bank lending gave a short-term boost to the world's third largest economy. A lending boom sparked a 32.9% surge in urban fixed-asset investment in the first five months, the fastest growth in five years.

China's fixed-asset investment has had a positive impact on copper demand, so the demand situation is a little better than we had earlier expected, said Cai Luoyi, Shanghai-based analyst at Shanghai CIFCO Futures Co. Record June imports were expected, but from July, imports will drop sharply.

Copper imports by China may plunge 64% to around 100,000 metric tons a month in the second half after record shipments this year led to excess stocks, UBS AG said July 6th.

Copper importing turned unprofitable since May, according to data compiled by Bloomberg. Still, shipping in the metal as a way to obtain financing is very active, Yang Gang, a trader at LG International Corp. said, referring to the credit terms traders can obtain from banks.

In company specific news, Rio Tinto Group reportedly asked Chinese steelmakers for compensation of about $9 billion in late June for breaking supply contracts, the 21st Century Business Herald wrote, citing an unidentified industry official.

Rio Tinto claimed that Chinese mills delayed or canceled iron ore shipments for eight months, causing an aggregate loss of $5 billion in the supplier's iron ore business and another $4 billion in ship leasing costs, the report said. BHP Billiton Ltd. also asked the Chinese steelmakers to compensate with an unknown amount, the newspaper said.

Have a great weekend... see you on Tuesday!



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