Good Morning,

A fresh rise in crude oil to a new record of above $143 supplied the fuel for gold to test the previous mid-May $935 resistance level and bring it to within $10 of getting back on track for a possible recapture of the four-digit target once again. Although the dollar was steady and then rose to near 72.40 overnight and early today, the expectation that the ECB will raise its rates on the 3rd coupled with reports of a rise in US covert activities in Iran gave speculators enough ammunition to keep gunning oil's engine and try to race for new records. The dominant story of the first half of 2008 is crude oil's epic leap - by a long shot. The commodity casts a huge shadow on practically everything else in the markets. At last check, the barrel of dino juice was quoted at $142.71 up $2.50 on the day.

New York spot gold opened the last trading session of the month and the quarter with a $4.60 gain quoted at $931.40 per ounce as participants kept an eye on Iran-Israel tensions and the (still) soaring price of black gold. Today's economic calendar offers little in the way of market-moving data, thus the focus remains on oil and currency movements and the (thus far) declining stock market futures. Quarter-end book-squaring and window-dressing activities may induce an additional amount of volatility into today's action yet. Silver was ahead by 15 cents this morning, quoted at $17.66 while platinum added $21 to $2066 and palladium lost $1 at $465 per ounce. Tomorrow's auto sales data may dampen the noble metals complex to a degree.

Amid predictions that the fireworks are just getting started and that the second half of this year may yet prove to be the frosting on the commodities' seven year old birthday cake, a number of factors have slowly emerged that could put the party on hold, or worse, send its sated guests towards the exit doors. Bloomberg's tireless London-based Claudia Carpenter brings us a different perspective than what you might read in your average hard money survivalist newsletter. You may wish to balance your knowledge base with the following observations:

Commodities are heading for their best first half in 35 years. The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply. The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent this year, the most since 1973. High costs are slowing the pace of demand for gasoline in the U.S., and gold purchases in India, the biggest buyer, plunged 50 percent from a year earlier. Producers are expanding supplies of wheat in the U.S. and steel in China.

``We're near some kind of reckoning'' in commodities, said Michael Aronstein, president of Marketfield Asset Management in New York, who returned 15 percent a year in the 1990s managing commodity investments. ``I've probably been positive for seven years and this is the first time I think there could be really a dramatic secular reversal, that it's not just a pullback.''

High energy costs will deter consumers and reduce second- half prices, after oil doubled in the past year to a record $142.99 a barrel June 27, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. In the U.S., the world's largest energy user, the number of travelers over the Fourth of July holiday will drop for the first time this decade, after gasoline rose above $4 a gallon, motoring group AAA said June 26. Surging jet-fuel costs led to the failure of at least a dozen airlines in the past six months, grounding planes.

China Slows Purchases

Demand is slowing for copper after the metal jumped 28 percent this year and reached $4.2605 a pound May 5, the highest ever, partly because of temporary supply disruptions in Chile, Peru and Mexico. China said June 10 its copper imports fell 19 percent last month to the lowest since August. Buyers in China, the world's biggest metals importer, are ``price sensitive,'' according to Freeport-McMoRan Copper & Gold Inc., the world's second-largest producer.

Gold demand from jewelers, the biggest users, has stalled since September, London-based UBS AG analyst John Reade said May 29. After reaching a record $1,033.90 an ounce March 17, gold will average $850 this year and $750 next year, he said. The World Gold Council said May 20 that first-quarter demand fell to a five-year low.

Rising Output

Price gains that curb demand are encouraging producers. Katanga Mining Ltd. restarted the largest underground copper mine in the Democratic Republic of Congo. The Lisbon-based International Copper Study Group on April 28 forecast a supply surplus this year and next.

The world's wheat farmers will boost production by 8.2 percent to 658 million metric tons in the next 12 months, the International Grains Council said June 26. Wheat jumped to its highest price ever in February.

Prices for commodities including crude oil, copper, wheat and gold advanced in London, New York and Chicago trading today.

Output is gaining as economic growth slows.

The odds of the U.S. entering a recession in the next 12 months are 50 percent, according to the median forecast of 61 economists in a Bloomberg survey. Slowing global growth signals commodity demand will ``soften,'' the International Monetary Fund said in March. During the last U.S. recession in 2001, the CRB index plunged 16 percent.

Commodities advanced this year during a ``buying orgy'' by investors seeking better returns than stocks and bonds, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, said in March.

Outgaining Equities

The UBS Bloomberg CMCI Index of 26 commodities rose 32 percent this year to a record through June 27. Equity markets trailed behind, as the Standard & Poor's 500 Index dropped 13 percent. U.S. Treasuries returned 2.1 percent.

Indexes linked to commodities took in an unprecedented $235 billion as of mid-April, according to Lehman Brothers Holdings Inc.

The expansion is now slowing. Second-quarter net inflows into European exchange-traded products linked to commodities fell about 58 percent to $800 million from the previous quarter, Barclays Capital said.

The prospect of increased regulation also may make investing in raw materials less attractive, said Dennis Gartman, whose $250 million fund in commodities, stocks and bonds climbed about 30 percent since April 2007. The House of Representatives approved on June 26 a measure requiring the Commodity Futures Trading Commission to use its emergency authority to curb excessive speculation in energy.

Dollar Rally

Investors also may shift away from commodities as an alternative to dollar assets. The U.S. currency will end a two- year slide and advance 4.7 percent in the second half, according to forecasts compiled by Bloomberg.

Lower prices would ease social tensions. The World Bank warned that 33 countries from Mexico to Yemen faced unrest because of higher commodity costs. The Egyptian government now spends about 5.5 percent of the national budget on bread subsidies and people were killed during food riots.

Some commodities may keep rallying.

Floods across Iowa, the largest corn-growing state, and in Illinois and Missouri threaten to cut corn and soybean plantings by 4 million acres, or 2.5 percent. The U.S. Department of Agriculture releases its next crop forecasts today.

Jim Rogers, who in April 2006 correctly predicted oil would reach $100 and gold $1,000, said investors should steer clear of the dollar and favor commodities. ``Agricultural prices have much higher to go over the next decade,'' Rogers said in a speech in Shanghai today. ``We have a shortage of everything, including seeds.''

Profit-taking lurks as a tempting undertaking amid current heavily overbought conditions. Much depends on as yet unknown triggers but volatility will not be lacking in this abbreviated trading week. Tomorrow we bring you our projections for the second half of the year in precious metals. It has been a turbulent first half to be sure, and signs that the track ahead is full of twists and turns and complete loops are everywhere.

Happy Trading.