Good morning …

Precious Metals

Gold didn’t do much through Hong Kong and London then showed some volatility in Comex trading, reaching an intraday high above $957 around 1 p.m. in New York and tumbling down from there through the Globex, finishing at its intraday low of $948.00/oz., down $3.10. Overnight, gold is little changed.

Platinum started moving up in the Far East then developed a downward trend at the Hong Kong close and fell to an intraday low around $1169 just before 10 a.m. in New York, but clawed back from there to an intraday high of $1185 around 1 p.m. Eastern before falling off again, closing at $1175/oz., up $2. Overnight, platinum is trending lower.

Silver traded flat most of the day, as a gentle rise and fall in London and the same in New York canceled each other out perfectly. The metal finished exactly where it started at $13.70/oz., up/down 0 cents. Overnight, silver is trending higher.

Despite big gains in oil yesterday, which is usually gold supportive, the yellow metal fell as it took its cue from rising equities and a slightly stronger dollar.

We have a tug of war here between those who dare to buy at these levels and people who got in at previous levels. If it breaches $960 [an ounce] it might make a quick run to $975, or it might swing back to the lower end, said Jon Nadler, senior analyst at Kitco Metals Inc.

If Treasury auctions or GDP data coming next week prove dollar supportive, it would bring gold down to the $930s at a minimum, Nadler continued.

While Peter Grant, a senior metals analyst at USAGOLD - Centennial Precious Metals, Inc., believes inflation to be a legitimate risk, Nadler calls the jury very much out. Right now we're still grappling with deflation if anything.”

In reality, we’ve already had massive inflation (meaning expansion of the monetary base), but it hasn’t manifested in prices yet because the banks are holding the funds in reserve rather than lending them out. Once that money hits the market, however, (and there’s no telling when that will be exactly) you can and should expect huge price inflation to follow. This will be extremely positive for gold.

Currencies and Economic News

In the currency market, the dollar inched up against the euro. Late Thursday, the euro was trading at $1.4194 vs. $1.4214 on Tuesday.

On the economic front, the National Association of Realtors (NAR) reported yesterday that resales of U.S. single-family homes and condos climbed 3.6% in June to a seasonally adjusted annual rate of 4.89 million, the highest level since October.

Meanwhile, the inventory of unsold homes on the market fell 0.7% to 3.82 million in June. This is reportedly a 9.4-month supply at the June sales pace, down from 9.8 months in May.

“The housing market appears to be healing,” said Lawrence Yun, the NAR’s chief economist. Yun said that inventories would have to be at a seven-month supply to get price stabilization. He said prices could stabilize around the end of the year.”

The NAR report sparked a debate about whether the housing market has really turned a corner.

Some say yes, some say no, and some are on the fence.

Housing may no longer be the weakest link, said Joel Naroff, president of Naroff Economic Advisors.

The economy is still losing jobs, credit is still tight, mortgage rates are a bit higher than they were in the second quarter, and the tax credit for first time homebuyers, which is boosting sales, expires at the end of November, said Patrick Newport, U.S. economist at IHS Global Insight.

The acid test is whether sales can push on beyond the pre-Lehman trend of just under five million over the next few months, said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Energy

In the energy market, crude oil for September delivery shot up $1.76 from Wednesday to close at $67.16/barrel. August reformulated gasoline rose 7.49 cents to finish at $1.9132/gallon.

Crude closed at its highest level since June 1 yesterday, apparently feeding off the NAR’s U.S. home sales data and better-than-expected reported company earnings.

Home sales blew the market away, said Phil Flynn, vice president at futures trading and research firm PFG BEST Research. Oil wants to go lower but the surge in stocks pushed it up.”

Demand is still weak and supplies still high yet the market keeps driving us higher, he added.

Crude has risen in six of the recent seven sessions. The rally came even after petroleum data continued to show weak demand and rising inventories.

Total inventories of crude, gasoline and other petroleum products in the U.S. rose 1.9 million barrels in the week ended July 17, up for a sixth straight week to the highest level since September 1990, data released by the Energy Information Administration showed.

Base Metals

Base metals were mixed on Thursday. Copper fell 1.25 cents to close at $2.4893/lb. Nickel gained just over 1 cent to finish at $7.2998/lb. Zinc lost almost one penny, ending at $0.7450/lb. Aluminum rose a cent and change, closing at $0.7798/lb., while lead moved to $0.7719/lb., down half a penny from the previous session.

Despite copper’s slight pullback, investors remain mostly bullish, encouraged by what they see as an improving outlook on demand and economic recovery.

The overall sentiment in the metals market has improved a lot, said Yingxi Yu, an analyst at Barclays Capital. It has not much to do with the dollar, but follows stock markets closely, as the second quarter's corporate earnings were broadly better than expected, improving outlook on the economy.”

Copper supply concerns also underpinned the bullish sentiment. Violence was reported near Freeport-McMoRan's massive Grasberg mine in Indonesia, and a power problem occurred at Anglo American's Chilean Collahuasi copper mine, but so far neither has reported serious production disruptions.

But with copper near nine-month highs some analysts and market participants warn not to get your hopes up too much just yet.

Despite these supply-side concerns, we find it hard to make the case for anything approaching a runaway bull market in copper (or any of the metals for that matter) given the still sluggish rate of growth noted in most economies, said analyst Edward Meir at MF Global.

“I don’t think copper prices climbed because of a dramatic improvement in supply-demand conditions,” said Koichi Kaku, general manager of Japan’s second-largest smelter of the red metal, Sumitomo Metal Mining Co. “I’m skeptical about a strong recovery in the market.”

Meanwhile, LME copper stockpiles rose again on Thursday, up 3,225 metric tons to a one-month high of 271,725 metric tons.

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


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