Good morning ...

Precious Metals

Gold had a pretty uneventful day. Aside from a couple small dips just to the south side of $935, the yellow metal remained range-bound between $935 and $940, and ended the day near the middle at $937.00/oz., down $2.50. Overnight, gold is flat.

Platinum showed much more volatility than gold, shooting higher in Hong Kong then falling off, then going vertical at the New York open only to drop off later in the morning but managing to claw back later in the day, closing at $1161/oz., up $4. Overnight, platinum has moved higher.

Silver followed gold's lead in the boring category. Apart from three or so short trips below $13.20, the metal remained mostly range-bound between $13.20 and $13.30, ending near its intraday high at $13.29/oz., up 4 cents. Overnight, silver is little changed.

Gold had a blah Thursday, which also marked the end of a five-day rally that pushed the yellow metal up more than $30.

Apparently, rising prices in crude and other commodities as well as a falling dollar were more than canceled out by rising equities and economist Nouriel Roubini's remark that the worst is behind us.

Meanwhile, The Mogambo Guru had some interesting words about the imbalance of supply and demand in the silver market.

...But sometimes something comes along that makes me think about silver, such as David Morgan of the silver-investor.com site reporting that during the past ten years, silver's use in industry has gone from roughly 35% of the entire annual production in silver, to greater than 50%. Not only that, but it is the fastest growing area of the silver market.

So how much silver was mined? Well, the commoditynewscenter.com notes that According to the US Geological Survey, about 672m ounces of silver was mined in 2008. And with an average silver price of $14.94 per ounce, if all mined silver was sold at spot, the entire supply chain would generate revenues of only about $10 billion.

It is statistics like these, coupled with the dismal fact of the virtual elimination of above-ground stocks of silver as the myriads of electronic devices produced over the decades consumed it all, that makes me look at the world with suspicious distrust, my eyes narrowed to slits and my hand inching under my jacket to the shoulder holster in case I have to blast my way out as I realize - to my dismay - that the creatures of this planet are so stupid that they can look at this silver thing, and yet not start buying silver right away! Weird! More than weird!...

Thank you Mr. Daughty.

Currencies and Economic News

In the currency market, the dollar continued to fall against the euro. Late Thursday, the euro was trading at $1.4142 vs. $1.4107 on Wednesday.

The dollar got a quick one-two combo yesterday as better-than-expected results from J.P. Morgan Chase reinforced investor appetite for equities and the Labor Department's report that jobless claims fell to their lowest level since January knocked it on its derriere.

In economic news, it was the Labor Department report making headlines.

MarketWatch reported that claims for state unemployment benefits fell sharply in the latest weekly data, after adjustment, but problems with the data due to the timing of layoffs mean that recent drops may not represent economic green shoots. [No kidding, huh?]

The number of initial claims in the week ending July 11 fell 47,000 to 522,000 - the lowest level since early January. But the data are clouded because many of the expected temporary layoffs in the automotive sector have already occurred, a Labor Department analyst said yesterday.

The government seasonally adjusts the data, assuming that auto layoffs will take place in early July. But many manufacturing layoffs, predominantly automotive, have already occurred, while others may come later or not at all. Analysts expect several more weeks of volatility in the claims data due to layoff-timing issues.

We expect a hefty rebound over the next few weeks, wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics, in a research note. The latest numbers are just far too good to be true...It is not good news, especially for the people concerned.

Economists polled by MarketWatch had expected volatility and an initial claims level of 505,000.

If the seasonal adjustment makes little sense to you too, you might want to know that the advance number of actual initial claims under state programs, unadjusted, totaled 667,534 in the week ending July 11, an increase of 86,389 from the previous week. [Though this number too will likely be revised soon.] Furthermore, there were 483,981 initial claims in the same week of 2008.

Energy

In the energy market, crude oil for August delivery climbed 51 cents from Wednesday to close at $62.05/barrel. August reformulated gasoline rose a little more than half a cent to finish at $1.7135/gallon.

Crude finished above $62 for the first time since July 7 as investors' positive interpretation of economic data from the U.S. and China - the two biggest consumers of oil in the world - offset worries about sluggish petroleum demand.

Oil is rising due to its correlation with stocks and macroeconomic views, said Zachary Oxman, managing director at TrendMax Futures. However, the market is due to turn down and I'd treat bounces in crude as an opportunity to get short the market.

While we wouldn't necessarily recommend shorting crude, we certainly agree with Mr. Oxman's contention that the market [meaning stock market] is due to turn down.

Prior to oil posting its gain, demand concerns for petroleum held it down early in the day.

U.S. demand for total petroleum products such as gasoline and diesel fell in the first half of the year to the lowest level in a decade, a Thursday report by an industry group showed.

Petroleum products delivered to the market, an implied gauge of demand, fell to an average of 18.75 million barrels a day in the first half of 2009, the Washington-based American Petroleum Institute said.

Oil fundamentals are still weak and despite the pockets of positive figures recently indicating improving economic conditions, doubts still linger over a global economic recovery, said Nimit Khamar, analyst at Sucden Financial Research.

It is clear that the positive optimism is not yet materializing into actual crude demand; this may keep crude prices under pressure, Khamar added.

Base Metals

Base metals mostly posted mediocre gains on Thursday. Copper climbed 0.68 cents to close at $2.3810/lb. Nickel added more than 5 cents to finish at $7.2114/lb. Zinc gained almost half a penny, ending at $0.6855/lb. Aluminum tacked on more nearly 2 cents, closing at $0.7498/lb., while lead moved to $0.7189/lb., down one and one-third pennies from the previous session.

Despite copper's small gain yesterday, analysts warned the outlook remains somewhat shaky, but also voiced growing confidence that the global slowdown is easing.

We're getting more and more economic data that suggests we have passed the worst and that we are pulling out of this slump, said David Thurtell at Citi. [While we respect Mr. Thurtell's opinion, we vehemently disagree that the worst is over.]

Even so, the benchmark red metal used in just about everything is up 7.9% from last Thursday's close after some less than terrible U.S. economic and corporate data.

LME copper inventories shed 225 metric tons to 260,875 tons. These low stock levels, combined with favorable supply and demand fundamentals, will benefit copper ahead of most other LME metals, Investec Asset Management said.

As the economic recovery gathers speed in emerging markets, the demand for base metals will likely continue to improve even if the recovery stalls in the developed markets, given the leverage copper demand has to China and the emerging markets, said analysts at Goldman Sachs.

In company specific news, China's detention of four Rio Tinto executives on allegations of espionage and bribery has yet to dim investor optimism for the world's third-largest mining company.

Rio is like BHP Billiton on steroids'', said Albert Landman, a fund manager in Melbourne at Stonebridge Group, which owns BHP and Rio shares. If you are looking for the recovery play and you are bullish about the future,'' then London-based Rio is the preferred stock, he said.

Rio shares have risen 4.9% since Stern Hu, the head of iron ore operations in China, and three colleagues were detained July 5, while its credit default swaps, a measure of default risk, have dropped 11%.

The company expects further recovery in Chinese steel demand in 2009 after this week reporting record second-quarter iron ore output from Australia.

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



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