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Precious Metals

Gold got off to a rocky start through Hong Kong and most of London, falling to an intraday low of about $908, but then took off just after 10 a.m. in New York where it stayed through the end of Globex trading. The yellow metal closed at $920.80/oz., up $7.80. Overnight, gold is little changed.

Platinum also fell through Hong Kong but jumped $20 between 10 a.m. and noon in New York to end the day at $1113/oz., up $8. Overnight, platinum is up sharply.

Silver tracked gold to a T, adding back all the day's losses and a lot more starting around 10 a.m. in New York through the Globex, ending at $12.83/oz., up 18 cents. Overnight, silver is trending higher.

Opposing forces were working on gold yesterday. As the dollar fell against the euro, the yellow metal's rising investment appeal pushed the price up. But falling oil prices, which reduce gold's attractiveness as a hedge against inflation, limited the gains the metal could post for the day.

Analysts said the modest recovery made Monday reflected how demand from gold ETFs remains weak.

Holdings of the SPDR Gold Trust stood at 1,109.81 metric tons on Monday, unchanged since July 8th, according to latest data from the biggest exchange-traded fund specializing in gold. Holdings have fallen 22.34 metric tons in the past month.

With weak physical and investment demand, the metal remains at risk to further downside pressure, said James Moore, analyst at TheBullionDesk.com.

From a technical standpoint, a failure to hold above $905 could trigger a deeper move to $894, Moore added.

Currencies and Economic News

In the currency market, the dollar fell against the euro. Late Monday, the euro was trading at $1.3995 vs. $1.3935 on Friday.

Better risk appetite on the back of Wall Street's rally has been the major driver on Monday, said currency strategists at Action Economics.

Going forward, in the short- to medium-term, currency analysts have expressed opposing views. JPMorgan is bearish, while Commerzbank remains slightly bullish.

With the bulk of earnings due to be reported over the next three weeks, a net balance of stronger earnings should provide a boost to equity markets and risk assets at the expense of a weaker dollar, a team of JPMorgan currency strategists led by London-based John Normand wrote in a report. We remain medium-term dollar bears.

A strong rise in profits would no doubt increase risk appetite, analysts led by Ulrich Leuchtmann in Frankfurt wrote yesterday in a report. On the other hand, expectations regarding the results have reached a high level, creating considerable potential for disappointment, possibly providing support for the dollar.

In economic news, MarketWatch reports that even teenagers (traditionally a recession-proof group) aren't expected to rescue the retail industry's second-biggest selling period: back to school.

After at least five years of increases, back-to-school sales, including those for college students, are expected to drop this year, with the National Retail Federation pegging the figure down 7.5% to $47.5 billion.

With the economy still struggling to find its footing and the unemployment rate at 9.5%, four out of five Americans have changed their back-to-school plans this year, a survey from the Washington trade group shows. While 56.2% of back-to-school shoppers said they are hunting for sales more often, about half of them said they plan to spend less overall.

The back-to-school period is a key indicator of consumer demand, coming before retailers' most crucial season -- the holidays, analysts say. While teens have traditionally held up well, they've not been immune from the job losses that hurt their parents and them in this recession, analysts said.

Energy

In the energy market, crude oil for August delivery fell 20 cents from Friday to close at $59.69/barrel. August reformulated gasoline lost just over 1 cent to finish at $1.6400/gallon.

The market still is concerned about the economy overall, said Phil Flynn, vice president at futures trading and research firm PFG BEST Research.

There is a sense right now that with the economic outlook being what it is, the demand prospects are still very poor, Flynn said.

The International Energy Agency on Friday reasserted its forecast that global oil demand for 2009 will fall 2.9%, or 2.5 million barrels a day, from a year ago.

It finally seems as if the abundant supply of crude, coupled with the fact that the economy is not improving at a break-neck rate, are coming together and putting the market down, said Zachary Oxman, managing director at TrendMax Futures.

I believe you'll see high $40s in the coming weeks as stocks and commodities continue to slide, Oxman added.

It's also worth noting that big speculators such as hedge funds and investment banks sharply reduced their buying positions, as the CFTC said it's considering setting limits on energy speculation.

Long, or buying, positions held by non-commercial traders, a category the regulator uses to classify big speculators, dropped by 16,382 contracts in the week ended July 7, according to the weekly COT report released by the CFTC late Friday.

That's the biggest drop in four months according to COT historical data.

Base Metals

Base metals were mixed on Monday. Copper gained 1.67 cents to close at $2.2225/lb. Nickel added more than 9 cents to finish at $6.6943/lb. Zinc lost a penny and a half, ending at $0.6507/lb. Aluminum lost half a cent, closing at $0.6929/lb., while lead moved to $0.7016/lb., down about a penny and a half from the previous session.

Despite copper's rise on Monday (which was helped by another large outflow of material from LME warehouses) analysts remain wary of the demand outlook for industrial metals.

I would say that there is likely to be downside pressure in copper as $2.20 is still overbought given the economic outlook and the supply/demand balance, said Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto.

There is a great deal of uncertainty, said Fairfax investment bank analyst John Meyer, adding that the market was waiting for something to give it firmer direction. There is clearly more negative news to come out of the manufacturing industry.

The market is very much torn between positive news in Asia, different news in Western markets and the potential for some recovery, he added.

In company specific news, what's being touted as the mother of all deals appears to be going forward.

As an apparent bid to consolidate their position in the market, Rio Tinto and BHP Billiton are moving towards the merger of their West Australian iron ore operations.

According to Australian newspapers, Rio is still finalizing the deal team that will hammer out the finer points of the plan to form a $116 billion iron ore giant.

If it materializes, this will be the world's largest mining operation. The European Commission, seen as the major regulatory hurdle, is yet to inform the miners of the level of scrutiny to which they will be subjected, report newspapers.

Analysts expect more than $10 billion worth of savings for the companies if the deal goes through. Rio and BHP signed a pact last month to merge their huge neighboring port, rail and mine systems in the Pilbara.

The deal will take a year to consummate and realize a decade-long ambition on both sides. Rio announced the deal the day it jilted Chinalco by canning a $19.5 billion rescue package that would have given the Chinese state-owned company an 18% stake in Rio and stakes of up to 50% in the miner's best assets..

That's what's happening... see you tomorrow!



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