Good Morning,

Volatility continued to buffet markets overnight and was most visible in the oil pits, where the commodity fell another 3% after having broken its apparently unstoppable momentum. A rise to $75 per barrel was quickly reversed once apprehensions about on-going demand surfaced yesterday. US inventory data came due today, and it showed a rise - at least as tracked by the API. The market was still awaiting the EIA data.

Also due today are durable goods orders figures and new home sales data. The groundwork for better numbers has probably already been laid by recent improvements in US consumer confidence and home price statistics. The general turn of the US economic battleship received another validation overnight; this one from JP Morgan's chief economist. He also pegged the end of the US recession as having terminated in June.

The US dollar was having a pretty good early Wednesday, rising to 78.51 on the trade-weighted index, while black gold dripped lower on the price scale, losing 55 cents to $71.50 per barrel. As expected, durable goods orders showed a pleasing change, rising 4.9% - the most in two years' time. Aircraft orders led he positive parade party. Against this background, precious metals opened on the mildly weak side, and were showing mixed results out of the starting gate once again.

The range-bound conditions which have hitherto characterized the summer's action in gold (but not so much in silver) continue to persist and the market still needs fresh drivers, the earliest of which are not expected until after the final holiday of the season, when the majority of participants will return and start playing once again. Thus, we will go with the $925-$965 channel as the path within which the metal meanders back and forth. Gold is showing a 15% gain for the year-on-year period.

Gold spot dealings opened with a $1.10 gain at $946.00 per ounce, silver rose 2 pennies to $14.27, and platinum and palladium fell $5 and $3 respectively, despite a second day of symbolic 'punishment' labor action at S. Africa's Impala. Workers have been offered a 10% wage sweetener (albeit they were seeking more like 13%) but were unhappy with the 'speediness' of management response to their requests.

In related news, Japan will slash domestic auto production amid severely slumping sales. Too bad they have not too many clunkers around the country. There are also some apprehensions about US car sales, now that a possible bad hangover could set in following the just-concluded CFC sales orgy.

Overseas, German business confidence rose more than expected on positive economic signals. Amid all of these positives, a not-so-happy finding that Japan's export slump continues, and a bit of ice cold water that was thrown at the markets, by China. The country is studying the application of curbs (aka guidance in euphemistic parlance) on overcapacity in industries such as steel, cement, and others.

Anything that can be done, in other words, to try and either slowly deflate the omnipresent bubbles and/or to try to avoid the advent of new ones. The overall result of this recent spate of tightening-flavoured official posturing has been a 15% drop in the country's market index. Not to mention a lot of nervous commodity speculators who have thrown their wallets at the markets in anticipation of China's putative insatiability for 'stuff' resuming any day now...

Steady dollar thus far following this morning's numbers. Oil trying to recapture $72. We need more news. Someone, please write some zingers.


Until later,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America

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