Good morning …

Precious Metals

Gold got off to a slow start in Hong Kong and trended down through London but shot up around 11 a.m. in New York, hitting its intraday high near $955 two hours later. From 1 p.m. through the Globex close, the yellow metal retreated somewhat, finishing at $951.10/oz., up $2.10. Overnight, gold is trending higher.

Platinum fell off a cliff again late in Hong Kong but managed to add back the day’s losses and then some over the rest of the trading session, closing at $1173/oz., up $3. Overnight, platinum is up sharply.

Silver started to fall midway through trading in the Far East and moved sideways through London but trended much higher the rest of the day through the Globex to close at $13.70/oz., up 17 cents. Overnight, silver is trending higher.

Gold closed at its highest price on the Globex since June 11 as the dollar weakened in response to an up-tick in risk appetite.

“Almost all the recent momentum is coming on the back of recent dollar weakness,” said Pradeep Unni, a Richcomm Global Services analyst. “Earlier this month economic worries encouraged investors to buy the dollar and U.S. Treasuries. Appetite for other assets including gold and equities seems to be returning.”

“Prices remain well supported above the $950 an ounce mark, largely on the back of the weaker dollar,” said Calyon metals analyst Robin Bhar.

“It may be that outflows from things like the ETFs or the retail base are being offset by more buying of OTC- or futures-based [products],” Bhar added.

Meanwhile, reported holdings of SPDR Gold Shares (GLD) dropped another 5.8 metric tons yesterday from 1,092.41 tons to 1,086.61 tons. In the last 30 days, holdings have fallen 44.63 metric tons, or 3.9%.

Some analysts view the decline in holdings at GLD as a sign of waning investor demand.

“We fear that there will be very few buyers above $955 an ounce,” said Andrey Kryuchenkov, a VTB Capital analyst. “Investor demand is waning and it is too early for a seasonal pick-up in jewelry demand.”

Currencies and Economic News

In the currency market, the dollar fell against the euro. Late Wednesday, the euro was trading at $1.4214 vs. $1.4199 on Tuesday.

On the economic front, U.S. home prices rose 0.9% on a seasonally-adjusted basis from April to May, according to the Federal Housing Finance Agency’s monthly House Price Index. The previously reported 0.1% decline in April was revised to a 0.3% decline. For the 12 months ending in May, U.S. prices fell 5.6%. The U.S. index is 10.7% below its April 2007 peak.

“Revisions and volatility of the monthly index make it hard to draw any conclusions, but the seasonally-adjusted HPI for the first five months of this year is up 0.3% or 0.7% on an annualized basis,” said FHFA Director James Lockhart.

The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. For the nine Census Divisions, seasonally-adjusted monthly price changes from April to May ranged from -2.0% in the New England Division to +2.7% in the Pacific Division.

Meanwhile, mortgage applications rose a seasonally adjusted 2.8% last week from the prior week, overcoming higher interest rates charged on fixed-rate home loans, according to the Mortgage Bankers Association's survey released yesterday.

The latest results, for the week ended July 17, mark the third straight week of greater activity in mortgage applications.

Last week's applications were up an unadjusted 6.6% from the same week last year. The Washington-based MBA's survey covers about half of all applications filed for retail residential mortgages.

Energy

In the energy market, crude oil for September delivery [the new front-month contract] fell 21 cents from Tuesday to close at $65.40/barrel. August reformulated gasoline rose 2.63 cents to finish at $1.8383/gallon.

Crude oil inventories fell by 1.8 million barrels last week, the EIA reported yesterday. Gasoline inventories rose by 800,000 barrels and distillate stockpiles, which include diesel and heating oil, increased by 1.2 million barrels.

Analysts surveyed by energy-information provider Platts had expected a decline of 2 million barrels for crude stockpiles. They also had forecast increases of 800,000 barrels for gasoline and of 1.4 million barrels for distillates.

While refiners used less crude in their production, oil imports fell by 346,000 barrels a day last week, resulting in a drop in crude inventories. Refinery inputs averaged 14.8 million barrels a day, down 300,000 barrels from a week ago. Utilization rate stood at 85.8%.

Total petroleum products supplied, an implied gauge of consumption, rose to 18.917 million barrels a day last week, up 0.3% from a week ago. Consumption was still nearly 1 million barrels a day lower compared with a year ago.

Crude oil inventories at Cushing, Okla., the delivery point for Nymex oil futures, stayed unchanged at 30.8 million barrels.

EIA numbers have been very similar, as the last few weeks saw a slight draw in crude and a build in products, said Tariq Zahir, managing member at Tyche Capital Advisors.

With inventories at multi-year highs and OPEC members not abiding to quotas, crude definitely could come off rather abruptly, barring any political events or weather related issues,” he added.

Base Metals

Base metals were up on Wednesday. Copper climbed 6.44 cents to close at $2.5018/lb. Nickel gained more than 15 cents to finish at $7.2885/lb. Zinc added nearly two pennies, ending at $0.7529/lb. Aluminum rose half a cent, closing at $0.7685/lb., while lead moved to $0.7666/lb., up a penny and three-quarters from the previous session.

Copper closed at a new high for the year on concern that production disruptions in Chile will diminish supplies amid record imports by China, the world’s largest user.

Bloomberg reported that Output at Collahuasi mine in Chile, the world’s largest producer, will likely be cut following an “incident” that involved electrical equipment, according to a union leader. This comes at a time when China’s imports of the metal surged to record levels for a fifth month in June.

“A lot of fund money has been flowing into the copper market in China,” Wang Zhouyi, analyst at China International Futures (Shanghai) Co., said yesterday. “Many investors are very optimistic about economic recovery and so any news about potential output shortfall is good news for the market.”

The damage at Collahuasi, which is controlled by Xstrata Plc and Anglo American Plc, is being assessed, a Xstrata spokeswoman said yesterday. The mine produced 415,000 tons of copper last year.

In company specific news, Reuters reported that a Chinese firm plans to invest about $3.6 billion in copper exploration and mining in Zambia, reflecting growing Chinese interest in the country's mineral wealth, a senior investment official said yesterday.

Zambia Development Agency (ZDA) Spokeswoman Margaret Chimanse said Zambia and Zhonghui Mining Group signed an investment agreement on Tuesday.

The $3.6 billion will be invested by Zhonghui in the first five years (from 2009) and it is likely to be increased depending on economic factors affecting the copper industry, Chimanse told Reuters.

That’s what’s happening… see you tomorrow!


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