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Precious Metals

Gold traded sideways through Hong Kong and most of London then surged up to an intraday high of $953 at around 9 a.m. in New York only to completely erase the gains less than an hour later. From 10 a.m. through the Comex close gold showed a steep downward trend but reversed course and made up most of the day's losses on the Globex, finishing at $949.00/oz., down $0.10. Overnight, gold has moved lower.

Platinum fell off a cliff late in Hong Kong but clawed back early in New York only to get smacked down again beginning around 10 a.m. in New York and continuing through the Globex, closing at $1170/oz., down $11. Overnight, platinum is trending lower.

Silver hit its intraday high of $13.70 about midway through Hong Kong then developed a volatile but generally downward sloping trend and fell to its intraday low of $13.45 around 1 p.m. in New York. From there silver was able to regain some ground through the Globex to close at $13.53/oz., down 10 cents. Overnight, silver is down sharply.

Gold was propped up by higher oil prices yesterday but that upward force was slightly overpowered by investors' naïve belief that the Federal Reserve will be able to combat future dollar devaluation and price inflation.

Still, analysts like Shuji Sugata, a manager at Japan's Mitsubishi Corp Futures & Securities, said crude oil is currently a key factor in providing gold with direction.

We've seen crude oil climb almost daily and before we knew it it had topped $60, which has been a positive factor for gold, Shuji said.

Now whether crude oil challenges $70... will also be key to whether gold will rise towards its recent high near $990, he continued.

Meanwhile, reported holdings of SPDR Gold Shares (GLD) dropped 2.13 metric tons yesterday from 1,094.54 tons to 1,092.41 tons. In the last 30 days, holdings have fallen 38.83 metric tons, or 3.4%.

In company specific news, Australia's largest gold producer, Newcrest Mining's annual gold production fell more than 8% over the past fiscal year, only just meeting company guidance.

Newcrest's latest production report showed total gold production across its operations fell to about 1.63 million ounces, compared to about 1.78 million ounces last year, a fall of 8.4%.

Newcrest shares fell 57 cents, or 1.84%, to $30.39 on the news.

Currencies and Economic News

In the currency market, the dollar rose slightly against the euro. Late Tuesday, the euro was trading at $1.4199 vs. $1.4226 on Monday.

Except for the yen, the dollar gained marginally on most of its major rivals yesterday.

Since the start of the financial crisis of 2007 there has only been one trade across all the capital markets -- risk on or risk off. As equities collapsed, the dollar and the yen gained while the euro, the pound and the Aussie along with oil and gold declined, said Boris Schlossberg, director of currency research at GFT.

As the recovery trade took hold the process has reversed and all the risk currencies have marched almost lock in step with equity prices, Schlossberg added.

In economic news, Bernanke was back in front of Congress yesterday, spouting economic fallacy after fallacy that the news media eagerly lapped up and politicians grossly mis-analyzed.

The always-vocal Rep. Barney Frank, the Democratic chairman of the House Financial Service panel, said that all the talk about inflation missed the point.

The great mistake to worry about, according to Frank, would be a premature unwinding of the Fed's accommodative policy [meaning loose monetary policy and artificially low interest rates].

One reporter explained it like this: In medical terms, if the Fed removes the medicine it has given the economy too soon, it could cause a relapse and another sharp drop in economic activity. On the other hand, if the Fed is too slow to remove the medicine, the economy could overheat, causing inflation.

Too bad the medicine they've prescribed is the very thing that made the patient sick in the first place.

Energy

In the energy market, crude oil for August delivery rose 74 cents from Monday to close at $64.72/barrel. August reformulated gasoline climbed more than 2 cents to finish at $1.812/gallon.

The August contract expired yesterday at the highest settlement level for a front-month contract since July 2. The more active new front-month September contract also turned higher, to $65.61 a barrel.

People are buying in thinking that demand will pick up for oil and products soon, said Zachary Oxman, managing director at futures trading firm TrendMax Futures.

Meanwhile, energy traders are awaiting the Energy Information Administration's report on petroleum inventories scheduled for release later today.

Analysts surveyed by Platts expect a decline of 2 million barrels in crude stockpiles and an increase of 800,000 barrels for gasoline. They also project an increase of 1.4 million barrels in distillate supplies.

Total petroleum inventories, including crude oil, gasoline and diesel, are expected to rise for a sixth straight week, adding to what already is a 19-year high.

The fundamental picture looks bleak and far too much uncertainty remains on the demand outlook, so a move lower is possible, said Nimit Khamar, of Sucden Financial Research.

However, given the [oil] market is mainly driven by financial markets and economic sentiment for now, and not [by] oil fundamentals, further gains cannot be ruled out, although a rally based on this comes with an increased risk of a sharp correction, Khamar added.

Base Metals

Base metals were mostly down on Tuesday. Copper fell 0.68 cents to close at $2.4374/lb. Nickel dropped more than 21 cents to finish at $7.1320/lb. Zinc lost three-quarters of a penny, ending at $0.7357/lb. Aluminum added less than a quarter of a cent, closing at $0.7634/lb., while lead moved to $0.7493/lb., down more than a penny from the previous session.

Copper retreated a bit yesterday capping a six-day rally that pushed the red metal to a nine-month high on Monday. Speculation that demand will slacken in a seasonal slowdown in China had much to do with the drop in prices.

China imported 378,943 metric tons of refined copper last month, a 12% increase from May and the fifth straight record, customs office data showed yesterday.

Demand should ease after builders filled orders for the summer construction peak and the margin between China and London prices narrowed, said Pang Ying, an analyst at Shenzhen Rongtuo Trading Co.

July imports should definitely come off from these record levels as the arbitrage window has closed and we move into the slow consumption season. Demand in June was definitely weaker than in May, but comparable to June 2008 levels, Pang added.

In company specific news, the world's sixth-largest steelmaker, Tata Steel Ltd, raised $500 million in a sale of global depositary receipts to fund domestic expansion [in India] and mining ventures overseas.

Tata sold 65.4 million shares at $7.644 each, according to a statement sent to the Bombay Stock Exchange, the second-biggest overseas stock sale by an Indian company this year. The shares, sold at a 6% discount to yesterday's close in Luxembourg, will be listed in London, the statement said.

Finally, in the on-going saga of the Rio Tinto Four, China's Vice Foreign Minister He Yafei announced yesterday he told Australia Foreign Minister Stephen Smith at a recent meeting China has sufficient evidence Rio Tinto staff got state secrets through illegal means.

I've introduced the information about the case to him and stressed we have sufficient evidence to show that people involved in the case have obtained our state secrets through illegal means, He said.

The case has entered the legal process...I told him we aim to get an outcome from the case as soon as possible but of course we need to fully complete the legal process first, He added.

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



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