Good Morning,

Markets were seen gearing up for data day this Thursday, although the recent string of good news may suffer a setback if pre-release punditry surrounding US GDP numbers proves to be correct. A survey of 75 economist reveals that they reckon that the US economy probably shrank at a 1.5% rate in Q2 as opposed to what was reported last month, which was 1%. On the other hand, fairly good news was expected on the labour front this morning, as figures may show the first drop in unemployment benefits in nearly a month.

Well, the 75 surveyed economists' expectations were proven incorrect this morning. The US GDP did in fact only shrink by 1%. Jobless claims were down across the board (weekly, 4-week average, as well as continuing claims). Dollar reaction was expected to be positive, but as of this writing, the call was a bit early. Oil certainly extended its price slippage in the wake of the numbers.

Overnight market action was still fixated on China and its 'guidance' of steel and cement production amid sizeable overcapacity. Copper fell for a third day and local shares slumped once again, but only by three-quarters of a percent. In the wake of these condition, the yen rose nearly half a percent against the euro, and continued its longest positive streak against the common currency since July. The yen also gained against the dollar

European statistics offered a mixed bag once again this morning, with the region's retail sales falling for the 15th (!) month in a row, while German consumer confidence rose to a...15-month high. Spain's GDP shrank by 1.1% in Q2 as both consumption and investment plummeted again. While the figures are bad, they are also 'less worser' than the 1.6% contraction the country experienced in Q1.

Minor drops in the dollar and oil were the standout feature ahead of the start of NY trading this morning. Precious metals were largely marking time prior to the open, and they might do the same for the first stages of the day, until the US data is released and (at least partially) digested. The trade continues to bid bullion fairly well near $945 but few see any major break to the upside against the current thin trading background and absence of significant news-related price drivers.

NY spot gold started off with a $2.90 gain for gold, quoted at $948.40 per ounce against a 0.16 fall in the greenback, to the 78.52 level. Crude oil lost 24 cents to come near $71.19 per barrel. Silver was showing a 2-cent drop at the start of the session, quoted at $14.31 per ounce. There was no change reported in platinum as it traded at $1233.00 and ditto in palladium, which opened near $285.00 per ounce. Impala Platinum announced today that its annual revenues fell by 52% as lower metal prices in the wake of poor demand impacted the bottom line.

The bottom line for India -as regards current year gold imports- is also not shaping up to be something to remember. Bloomberg reports that the skies may be partially to blame. The rest of the blame goes to sky-high gold prices as seen through the eyes of fathers and mothers-in-law-to-be:

Gold imports by India, the world's biggest buyer, will  probably slump 37 percent this year as high prices and the worst drought in seven years pares rural incomes, cooling jewelry demand, a traders' group said. Purchases may drop to 250 metric tons from 396 tons in 2008, Harmesh Arora, vice president of the Bombay Bullion Association Ltd., said in a telephone interview.

Imports this month may have slumped to 14 tons from 98 tons in the year-ago month, he said. ''Fears of drought and fall in agricultural incomes are making people cautious and avoid jewelry spending,'' Arora said. ''Unless the price falls substantially, retail buyers are likely to continue with very essential purchases.'' Imports slumped 56 percent to 71.6 tons in the seven months ended July 31, according to the association.

And now, the bottom line on mine hedging/de-hedging, as offered up by SocGen in yesterday's polished presentation, fresh off the screen. Highlights follow:

 - 2009 has, thus far, seen a much more limited amount of net de-hedging than that observed in prior years.

- Coupled with our assumptions for continued accelerated cuts to the hedge book, we anticipate levels of net de-hedging in the second half of the year to be broadly comparable to the first half.

- The majority of the global hedge book still under the control of two main players, namely Barrick Gold and AngloGold Ashanti, there remains significant scope for the two companies' actions to act as a swing factor.

- Mine supply is currently estimated to have grown in the second quarter year-on-year, by similar volumes to that seen in the fi rst. Strong gains were again seen in Indonesia, China and Russia, while another reduction was observed in South Africa. (This was validated by yesterday's production stats featured in our afternoon commentary).

Recall that mine de-hedging activities have lent a significant helping hand to bullion in recent years.

We will return with more on the same, and more of the same, in the afternoon.

Enjoy your day.

Jon Nadler
Senior Analyst
 
Kitco Metals Inc.
North America
 
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