Good morning ...

Precious Metals

Gold had another uneventful day. The slight downward trend that developed in London was erased before 10 a.m. on the Comex and the yellow metal stayed flat from there, finishing near where it started, at $937.70/oz., up $0.70. For the week, gold is up 2.7%.

Platinum got a boost early in Hong Kong trading, then trended down until things got started in New York where the metal broke through resistance at $1170 to post a solid gain, closing at $1172/oz., up $11. For the week, platinum is up 6.1%.

Silver's chart yesterday resembles the Nike swoosh symbol. After a curving downward trend through Hong Kong and London the metal went vertical in the early hours of Comex trading, but then tapered off, ending near its intraday high at $13.41/oz., up 12 cents. For the week, silver is up 6.0%.

Investors showed slightly renewed interest in gold as an inflation hedge Friday, as crude oil closed at its highest price since July 6.

Here's what The Hightower Report had to say about the action in gold and silver: The bull camp will praise the gold market's capacity to hold up around this week's highs for most of the session today. The bear camp will suggest that the bull camp should have made more hay out of the scheduled data flow and the corporate earnings news. However, while the scheduled data flow as much better than expected, the corporate earnings news did have some troubling components. It was also clear that a stronger Dollar and weaker equity prices took some of the positive macroeconomic psychology out of the trade on Friday morning. The bulls might suggest that renewed terrorism threats could support gold, but the bear camp will quickly suggest that terrorism news on Friday morning supported the Dollar and that in turn crimped the action in the gold market.

The silver market was clearly lifted by an improved macroeconomic outlook in the wake of the US Housing starts and permits data. It is also likely that a firm bid in the energy complex allowed silver and copper prices some added bullishness. Like the gold market, it is possible that silver was at least partially restrained by the combination of a higher Dollar and weaker US equity prices.

Currencies and Economic News

In the currency market, the dollar climbed against the euro. Late Friday, the euro was trading at $1.4099 vs. $1.4142 on Thursday.

Analysts attributed the dollar's slight rise and thin trading on Friday to apparent mujahideen bombings in Jakarta.

The Associated Press reported that eight people were killed and at least another 50 injured in a pair of powerful blasts. The explosions occurred around the Megan Kunigan business area of the Indonesia capital, where the JW Marriott and Ritz Carlton hotels and some embassies are located.

A preference for safe-haven assets has been clear in the wake of the two bombings in Indonesia overnight, said Jane Foley, research director at Forex.com. The currency moves, however, have been relatively muted, she said.

The dollar index, which tracks the greenback against a trade-weighted base of six major rivals, was at 79.475, up from 79.222 late Thursday.

In economic news, the Commerce Department reported yesterday that construction of new homes and apartments picked up to the fastest pace in seven months during June.

Housing starts rose 3.6% to a seasonally adjusted annual rate of 582,000, the highest figure since November. Building permits also increased, rising 8.7% to 563,000, the strongest reading since December.

The starts figures for June came in stronger than the 531,000 annual rate expected by economists surveyed by MarketWatch.

Economists said starts had fallen about as far as they could. Now there are some new incentives in the market that are luring back potential buyers.

Analysts were willing to say that starts have hit the bottom, but were more cautious to predict a rebound given the overhang of unsold homes on the market.

One could interpret this report as somewhat bitter-sweet, said Millan Mulraine, economics strategist at TD Securities in Toronto.

On the optimistic side, it appears that residential construction activity may have stabilized...on the other hand, with sales continuing to lag behind the level of building activity by a factor of 200K, this up-tick in construction will likely mean that the inventory of unsold homes could continue to rise, Mulraine said.

Energy

In the energy market, crude oil for August delivery climbed $1.51 from Thursday to close at $63.56/barrel. August reformulated gasoline rose more than five-and-a-half cents to finish at $1.7699/gallon.

Crude got a boost from the housing data mentioned above, as the news raised hopes for an economic recovery.

Also pushing oil higher (according to MarketWatch), some traders who had been shorting, or selling without owning, the front-month contract have to buy it back to cover their positions before the contract expires Tuesday.

Trading is like wind, and any economic headline that comes along can change the direction, said Phil Flynn, vice president at futures trading and research firm PFGBest Research. It seems traders want to cover shorts ahead of the weekend.

The 6.1% gain oil posted this week came after a 10.3% fall last week. For the month, oil is still down 9.1%.

Meanwhile, China, the second-biggest energy consumer after the U.S., processed a record volume of crude oil in June as faster economic growth boosted fuel demand and refining profits encouraged production.

Oil processing rose for a fifth month to 31.9 million metric tons, or about 7.76 million barrels a day, China Mainland Marketing Research Co., which compiles data for the government, said in a statement yesterday.

Developing countries are going to grow and consume more energy, said Paul Crovo, a Philadelphia-based oil analyst with PNC Capital Advisors. This may be enough to offset tepid growth in the developed countries, like the U.S., and provide for reasonable growth in demand.

Base Metals

Base metals all posted mediocre gains on Friday. Copper climbed 2.72 cents to close at $2.4082/lb. Nickel added nearly 4 cents to finish at $7.2507/lb. Zinc gained more than 3 pennies, ending at $0.7182/lb. Aluminum tacked on more almost 1 cent, closing at $0.7589/lb., while lead moved to $0.7533/lb., up almost three-and-a-half pennies from the previous session.

Copper closed at its highest price this year on Friday, also boosted by the unexpected jump in U.S. home construction data.

The big boost in U.S. housing permits coupled with weakness in the U.S. dollar and a strong expansion in China's economy combined to drive the price of copper up nearly 10% on the week, said Michael Pento, chief economist with Delta Global Advisors.

An upper-cut, a left hook, and a body blow ... what a three-punch combination to power copper up through its $2.40 resistance level, he said.

Despite the stronger tone this week, analysts still remain somewhat skeptical about further upside price potential.

Is it all built on a foundation of sand? asked Calyon analyst Robin Bhar. [Copper] will struggle to sustain these prices over the coming couple of months.

Meanwhile, copper stocks at LME warehouses rose 3,275 metric tons to 264,150 tons from levels around 500,000 tons in early April.

Concerns about nearby supplies have arisen because LME data for several days now has shown a dominant position controlling between 50% and 80% of LME stocks.

The worry reflected the premium, or backwardation, of about $10 a metric ton for LME cash copper over the three-month contract. This compares to a contango of $14.50 on July 8.

The backwardation [isn't] a sign that consumption is strong. There are genuine concerns about long-term demand, a trader said. Backwardation is a function of nearby tightness in the market, short positions being rolled forward.

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



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