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The Daily Resource 8/21/08:

Good morning …

Precious Metals

Gold traded lower for most of the day, but gained a little steam after the noon hour and finished on an up note at $812.80, down 90 cents.  Overnight, gold has pushed higher.

Platinum traded within a $25 range all day, but closed at the high end of it at $1366/oz., up $21.  Overnight, platinum is trending higher.

Silver was down until the late morning, but it too found buyers in the afternoon hours, and they propelled it back to even at $13.25/oz., up a penny.  Overnight, silver is sharply higher.

(Click here for charts)

It was a blah day for the metals, with the dollar gaining and then falling, and crude slumping early before rallying back.

Julian Phillips, of goldforecaster.com, provided an in-depth look at what’s been happening in the market lately:

“Gold,” Phillips wrote, “bounced off strong support strongly today as we come to the close of the quiet season for gold and enter the main annual gold season in the final quarter of the year.  Many U.S. players are also soon to wind up their holidays and return to the gold market.  Indian physical buying has entered the market as a force taking up bargain pricing of gold as an early entry into their season for gold. 

“The main driver of gold of late has been U.S. selling primarily from the speculative COMEX quarter, with investment demand showing uncertainty and as net sellers of small amounts.   This left the field at the mercy of short-term traders who have pressed the metal down until this vigorous support was shown.   Below $800 that support has been visibly resistant to these pressures, as we see in the bounce we are now witnessing …  

“The malaise of the U.S. economy is by no means over as the I.M.F. itself is warning of a really big bank bust before long … [and] the credit crunch is getting worse.  

“The U.S. consumer is not in a position to add to the inflationary pressures we are seeing in the wholesale numbers, so we would expect the Fed to allow inflation to go untended, relying on deflation in many quarters to dampen it.   We expect the Fed to nurse already fragile growth instead.

“This translates into slower capital investment into the States from Asia and the Middle East and a continuation of the Trade deficit at unacceptable levels, leaving the $ to turn down shortly.

“Gold and silver are nearing the end of the savage correction they have endured.   With silver the 'long shadow' of gold falling further on the decline we would expect it to outperform gold going forward, particularly as we see investment demand in that metal appearing ahead of that demand in gold.” 

Currencies and Economic News

In the currency market, the dollar wound up higher against the euro.  Late Wednesday, the euro was trading at $1.4745 vs. $1.4785 on Tuesday. 

Traders’ focus returned yesterday to concerns about the economic health of the eurozone.

“Technical indicators on [euro/U.S. dollar] suggest that there is potential for a further rise towards $1.4875-1.4900 in the short term,” wrote strategists at Jyske Bank.

“However looking a bit further ahead, there is no doubt that the trend [for the euro/dollar cross] is down,” they said.

Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co., put forth the case for a stronger dollar, saying that, “In the long term, the tectonic plates of the market have shifted. The markets are coming around to the idea that the U.S. is weak but Europe is weaker.”

But sentiment that the Fed might raise interest rates soon, to combat  inflation, appears to be receding.

The futures market on the Chicago Board of Trade now shows only a 21% chance that the Fed will raise its target rate for overnight lending between banks by at least a quarter-point by its December 16 meeting.  That’s down from 35% odds a week earlier.

Inflation is coming. That will be the result of the Government’s “plans” to bail out banks, car companies, and anyone and everyone who asks for a handout. How will you protect your money? “Standard” investments are no longer viable options. Even a savings account could be disastrous when inflation sits down for dinner and feasts on the dollar. That’s why I wrote a report about the 3 investments you need to make to profit from the inevitability of inflation. These investments skyrocket whenever inflation is afoot. Read the full details here

Energy

In the energy market Monday, crude for September delivery ended its reign as front-month contract by moving slightly higher, closing at $114.98/barrel, up 45 cents.  September reformulated gasoline added 4.6 cents, to $2.9103/gallon.

“Crude-oil imports rose by their largest weekly amount since March as oil barges flooded the Gulf shipping channel once Tropical Depression Edouard fizzled,” wrote Chris Lafakis, of Moody's Economy.com.

“The surge in crude-oil imports, coupled with depressed levels of refinery activity, resulted in a colossal rise in crude oil inventories; the largest in seven years.”

In its weekly inventory report, the Energy Information Administration said that crude supplies rose by 9.4 million barrels in the week ended August 15.  Gasoline stocks fell by 6.2 million barrels, the EIA said, and distillates were up 500,000 barrels.  Refinery utilization fell to 85.7% of capacity, compared with 85.9% a week earlier.

The “depressed level of gasoline demand has rendered [refineries] increasingly reluctant to process crude oil,” said Lafakis. 
 

Base Metals
 

The base metals were mixed on Wednesday.  Copper rose until just before the noon hour, cresting above $3.51, then hit a sudden vicious selloff that plunged it into negative territory, finishing at $3.4293/lb., down nearly 4½ cents.  Nickel was up strongly in the pre-dawn hours, then held up well through New York trading, closing at $8.9214/lb., up almost 26½ cents.  Zinc traded choppily and came well off its highs, but ended with a gain at $0.7744/lb. up two-thirds of a cent.  Aluminum was off in the pre-dawn hours, rallied through the late morning, but then sank again, eventually shedding a bit more than a penny to $1.2273/lb., while lead hit a late morning downdraught that took it to $0.8082/lb., down three-quarters of a cent.

Copper declined despite hints that China will start buying again.  China's manufacturers, the world's largest copper consumers, may increase imports by 60%, said Frank Zhou, deputy manager of the copper division of Bayin Resources Co. in Shanghai.

Imports could jump to between 100,000 metric tons and 120,000 tons a month, from 75,707 tons in June, Zhou said.  The June figure was well below the monthly average of 114,502 tons in the first half.

“Watch out for a sharp pick-up in demand” from China, wrote Alex Heath, of RBC Capital Markets in London.  “If we are right, then the fourth quarter could very well see continued recoveries in price for the likes of copper.”

But that anticipation wasn’t enough to counter the reversal in crude prices after the inventory report, and the strength in the dollar.

Meanwhile, zinc was held back on concerns that supply will outpace demand for a second consecutive year.  The zinc surplus widened in the first half of this year to 72,000 metric tons, vs. a year ago, according to the International Lead and Zinc Study Group.

“Zinc is struggling to hold on to any gains it's made because supply fundamentals don't support a rally,” said Gayle Berry, of Barclays Capital in London.  “We have not seen much supply response from zinc producers.”

Barclays estimates that zinc production will exceed demand by 95,000 tons this quarter. 

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

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