Price weakness continued to be manifest in the precious and base metals complexes overnight, as China's stock market index fell another 4.3% and came to the point of requiring the 'bear market' label to be applied to it by market technicians. Albeit analysts see the Chinese market implosion this month as somewhat counterintuitive, there are other signs that point to justifiable apprehensions. Say, the Baltic Dry Index falling 2.5% just yesterday. Over in Germany, producer prices dropped at the highest rate in sixty (!) years last month, signaling the possibility of deflation taking hold in the eurozone.

The US dollar benefited from all of these jitters and rose 0.22 on the trade-weighted index, to reach 79.07 overnight. The chorus of calls for a significant dollar drop continues, with sources such as PIMCO and Mr. Rogers (Jim) envisioning a loss of reserve status for the currency. Curiously, neither party offered up realistic alternatives to the greenback when writing its pre-obituary. And, markets being what they are, essentially contradicted both, when the latest frissons of risk aversion created a few goose bumps in various trading pits.

Crude oil headed lower, but lost only a fraction in value and was last seen at very near $69 per barrel. The upshot of all of these developments was that gold remained under selling pressure and essentially orbited around the $935 level prior to the opening of the NY session this morning. Not so, was the case for silver - it sank 35 cents to its lowest level in one month - it reached $13.52 overnight.

New York spot metals dealings opened with a 0.55% loss in gold, which was quoted at $932.90 per ounce. Silver lost 42 cents to start at $13.55, while platinum was showing no change at $1227.00 an ounce. Palladium sank $4 to open near $268 per ounce. Market participants were mainly seen digesting a not-so-rosy report from the World Gold Council this morning. A few Tums were in order. Here is the gist of the survey, as provided by our friends at Bloomberg's London desk:

Gold demand fell to a six-year low in the second quarter as recession curbed buying by jewelers and electronics producers, the World Gold Council said. Central banks were net buyers for the first time since at least 2000.

Global consumption fell 8.6 percent to 719.5 metric tons from a year earlier, the London-based industry group said in a report today. That's the lowest level since the first quarter of 2003. Jewelry demand declined 22 percent and electronics, the biggest industrial use for gold, slid 26 percent. The World Bank said in June the global recession will be deeper than it expected three months earlier. Investors bought 222.4 tons of gold in the quarter, 46 percent more than a year earlier, as an alternative to stocks and bonds, said Rozanna Wozniak, investment research manager at the council.

Tough economic conditions have impacted jewelry and industrial demand, Wozniak said. Investment demand provided a cushion and we do expect that to continue.

Central banks bought 14 tons of gold more than they sold, the first quarterly net purchases since at least 2000, according to the council, based on figures from London-based research company GFMS Ltd. The so-called official sector had net sales of 69 tons in the second quarter last year, the report said. Wozniak said GFMS wouldn't identify any of the buyers.

Central bank purchases aren't counted in the 719.5 tons of total demand because they are considered a traditional source of supply, she said. Other such sources showed gains, including a 6 percent rise in mine production from the second quarter of 2008, and a 21 percent jump in recycled metal, the report said.

In India, the largest buyer, gold demand fell 38 percent to 109 tons, while it rose 11 percent in China, the second-biggest buyer, to 89.6 tons, the World Gold Council said. Germany was the biggest investment market with demand of 28 tons, compared with 23 tons in the U.S. and 21 tons in India, the report said.

Compared to what market hype you have actually been fed by certain hard-money newsletters, starry-eyed commentators, and agenda-driven bullion vendors, the fact and figures above are about as cold and hard as they can be. In a nutshell, as we have warned our readers for months, the gold market does not exist in a vacuum that is maintained by investment demand alone. Not when the amount it takes from the total demand pie is but a 30% slice.

As the Council says, it is a cushion, but no one should willfully ignore sizeable drops in essential areas such as jewelry and/or industrial usage. Nor should they try to mask the effects of increases in supply from mines and scrap sellers. These are factors that remain an integral part of the market's fabric, and they will count going ahead, just as much as they have counted up to now. Case closed.
See you on the other side of the trading day.

Have a nice one, everyone.