Casey's Daily Resource Plus - June 09, 2009

In Today's Edition

• Precious metals slide - Near-term weakness expected.
• Dollar proceeds higher against euro - Ireland downgrade weighs on common currency.
• Crude slightly lower - Analysts looking for bigger move to downside.
• Base metals mostly lower - OZ minerals rejects unsolicited recapitalization bid.

Precious Metals

Gold had about as blah a day as it could have on Monday, rising early in the Hong Kong session, then falling off to just after London opened, then trading inside a very tight $5 range for the rest of the day, finishing at $950.70/oz., down $3.90. Overnight, gold is little changed.

Platinum fell off $40 during Hong Kong trading, then regained half the lost ground before going flat from late morning through the Globex, and ending at $1242, down $21. Overnight, platinum has drifted lower.

The Price of Things Resource Last 1 Week Ago 3 Months Ago 1 Year Ago Gold 951.70 974.10 938.40 902.20 Silver 14.93 15.57 13.33 17.50 Platinum 1242.00 1209.00 1070.00 2069.00 Palladium 249.00 240.00 204.00 430.00 Copper 2.23 2.30 1.65 3.70 Nickel 6.37 6.56 4.38 9.94 Zinc 0.50 0.50 0.50 0.88 Uranium 49.50 49.00 43.75 59.00 Oil 68.00 68.00 44.59 136.87 Gas 3.75 4.25 3.94 12.69

Silver plunged through Hong Kong, falling below the $15 mark, then it too went rangebound through the day, tight between $14.80 and $15, closing at $14.89, down 38 cents. Overnight, silver is edging higher.

The precious metals opened the week with a very desultory day, in which early losses were locked in for all of them by sideways trading. Overall the results weren’t that bad, however, since the usual suspects provided no support, with the dollar continuing to rally and oil slipping lower.

“The metal traded lower as the dollar staged a strong rally,” wrote James Moore, an analyst at TheBullionDesk.com. “Given overbought chart indicators and the slight decline in SPDR holdings Friday, gold will continue to run into overhead resistance above the $980 level.”

GLD holdings dropped just over 11,000 ounces on Friday.

Some analysts are predicting a slow slide for gold, near-term.

“Gold prices could eventually fall toward $930 before rebounding back toward last week’s high at $990,” wrote Tom Pawlicki, an analyst at MF Global in Chicago. “Silver prices could fall toward $14.60 support before rebounding back toward $16.”

Pawlicki lowered his recommended “buy” price for gold to $930 an ounce from $950, but maintained a target of $1,033. “Silver may appear attractive from the long side upon bullish action near the $14.60 level,” he wrote.

One manager looking long term is Jean-Marie Eveillard, the senior investment adviser for the $7 billion First Eagle Global Fund, who says the fund is 10-12% invested in gold and gold-mining securities.

“It’s insurance to protect against the fact that current policies by the American government and the Fed are potentially wildly inflationary,” Eveillard says, rather sensibly.

News You Can Use: JNR Resources (V.JNN) is a Canadian based junior resource company aggressively exploring and developing its uranium properties in the Athabasca Basin of northern Saskatchewan, as well as southwestern Saskatchewan, central Newfoundland and the Deer Lake Basin of western Newfoundland. JNR’s distinguishing features include: highly experienced management and exploration teams, as well as a land package that was chosen with an emphasis on technical merit, strategic location and politically stable, mining- friendly jurisdictions.

Currencies and Economic News

In the currency market, the dollar gained further ground on the euro. Late Monday, the euro was trading at $1.3883 vs. $1.3968 on Friday.

“The dollar has probably seen its worst levels for a while, and now we can expect a sideways-to-higher trend over the next month,” said Ron Simpson, currency strategist at Action Economics.

With no big numbers due out until tomorrow, traders focused on other factors.

The smaller-than-expected job losses reported on Friday helped reinforce the idea among investors that the U.S. economy will be the “first in, first out” of recession, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

However, Gallo added that he's skeptical of that scenario, while conceding that the dollar could continue to rise in the near term.

In addition, the euro took a hit after Standard & Poor's downgraded Ireland's long-term sovereign credit rating to AA from AA+. Ireland's credit outlook remains negative, S&P said, as the country is burdened by the fiscal costs of supporting its crippled banking system.

“Ireland is in an especially difficult place,” said analysts at Brown Brothers Harriman. “The cost of the financial bailout, coupled with the loss of tax revenue due to the severe contraction and counter-cyclical spending, is proving to be overwhelming.”

And across the Pacific, Japan’s current-account surplus plunged in April, coming in more than 20% below projections. Exports have fallen 40.6% on the year, while imports are down 37.8%.




Energy

In the energy market on Monday, crude for July delivery slipped slightly lower, closing at $68.09/barrel, down 35 cents. July reformulated gasoline fell a penny and a half, to $1.94/gallon.

Market watchers continue to line up almost unanimously behind the notion that the recent rally in crude is overdone.

“From a fundamental point of view, the outlook remains subdued,” said analysts at Commerzbank. “Oil demand remains weak, while supply is being expanded at present, leading to rising oil inventories.”

Zachary Oxman, managing director at TrendMax Futures, concurred, saying that, “I think it's time for a bit of a respite for both crude and stocks … Gas prices at the pump are becoming more of an issue again and if we see the averages move into the low $3 per gallon, I think that you will continue to see big supply builds as people stay home and drive less.”

And Credit Suisse analysts opined that the oil market on Friday was “torn between the negative effects of a stronger U.S. dollar and the positive effects from better-than-expected U.S. non-farm payrolls.”

They further wrote that, “The strong influence of currency movements on the oil prices is ... a sign that the market is currently dominated by speculation.” Oil prices have moved ahead of fundamentals, but further price declines are “possible as actual demand remains weak.”






Base Metals

The base metals were mostly lower on Monday. Copper declined through the pre-dawn hours, perked up in New York but failed to escape the red, finishing at $2.2349/lb., down a penny and a half. Nickel followed copper, though it had a sharper late-day selloff, ending at $6.3722/lb., down 15½ cents. Zinc was weak, closing at $0.6852/lb., down more than a penny and a half. Aluminum had a good day, adding more than 2 cents, to $0.7194/lb., while lead was lower, dropping more than a penny, to $0.7437/lb.

Copper led the industrial metals generally lower, although aluminum was an exception, as traders reacted primarily to the dollar’s rally.

However, some analysts believe that decent underlying support kept copper from falling even farther.

“Copper’s downside was limited with investors choosing to focus on the positives -- most notably the surprisingly strong U.S. unemployment data on Friday and strong Chinese demand signals,” said Michael Gross, a futures analyst with Optionsellers.com in Tampa, Florida.

Gross added that, “You may be getting a little pressure from the dollar, but a lot of traders seem to be looking at the glass as more half full right now.”

Stockpiles prolonged their freefall. Copper inventories monitored by the LME dropped by another 2,125 metric tons yesterday, to 297,050 tons.

In company news, OZ Minerals, the Australian mining company seeking to refinance A$1.1 billion ($865 million) of debt, said two unsolicited recapitalization proposals—from institutions including RFC Group and Royal Bank of Canada--were “inferior” to an offer from China’s Minmetals Group.

“In the Minmetals transaction, we have a proposal to resolve OZ Minerals’ refinancing issues that is both highly certain and offers value to our shareholders,” Chairman Barry Cusack wrote in a statement. The alternatives don’t offer a “complete solution,” Cusack said.




Resource Stock Roundup

The Canadian markets opened on a weak note but some late-stage buying helped to trim the losses during Monday’s session. For the tale of the tape, the TSX Exchange fell 0.19%, while the TSX Gold Index managed to gain 0.9% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, dropped 0.54% with the decliners beating out the advancers by a 464 to 351 margin on a respectable 181 million shares traded.

Merger mania continued with Silvercorp Metals offering up 0.5 of its shares for each Klondex share. The hostile offer is valued and C$70 million and would give the base metal miner exposure to an advanced gold asset in Nevada.
Silvercorp closed down C$0.54 at C$3.82, while Klondex added C$0.58 to C$1.95.

Golden Predator Royalty & Development inked a deal to acquire up to a 70 per cent interest the past producing Brewery Creek project in the Yukon. Golden must spend C$4 million by the end of 2012 to earn a 51 per cent interest. Golden will have the option to acquire an additional 14 per cent interest in the project by spending additional C$1-million and completing a preliminary economic assessment by the end of 2013. An additional 10 per cent can be reached by Golden by completing an additional C$1 million in exploration expenditures and delivering a bankable feasibility study by the end of 2014. Project owner, Alexco Resources retains a one time right to buy back the additional 10 per cent interest by paying to Golden Predator 2.5 times all exploration and development expenditures incurred by Golden Predator in excess of C$4 million. Golden ended the day unchanged at C$0.44, while Alexco fell C$0.19 to close at C$2.35.

The deal flow is continuing at a torrid pace in the junior end of the equity market spectrum. When will the major step into the fray and take a run at a junior? We shall see what Tuesday trading has in store.





And then there's this... From Ed Steer:

Both gold and silver hit their high prices of the day during early trading in the Far East on Monday morning. Then, starting about 1:00 p.m. in Hong Kong, both gold and silver began to head south...and by the time I hit the sack shortly after the London open, gold was down about $7 and silver was down about 40 cents. I had visions of a total blow-out when I woke up yesterday morning, but was pleasantly surprised to find the worst was already past. The lows for both gold and silver were at the London p.m. gold fix...10:00 a.m. in New York. After that, gold managed to gain about $5...and silver was steady into the end of Globex trading in New York at 5:15 p.m. on Monday afternoon.

Gold open interest changes in Friday's huge down day were not a surprise. Gold o.i. fell a steep 9,739 contracts to 391,960...on big volume of 168,554 contracts. Silver o.i. fell 3,483 contracts to 10,791....on big volume [switches] as well...47,997 contracts. Gold volume was decent on Monday as well...92,020 contracts...according to the usual N.Y. commentator.

He also had this interesting point...”The failure of the Bears to make any real progress during their normal prowling time...the Comex day session...raises the possibility that they may be stretched. [Were they even trying??? - Ed] Apparently the gold shares feel this way: the XAU actually finished up 0.27% on the day...having been down 3.4%; and the HUI closed down only 0.19%...having been down 3.5%. This is quite unusual action and encouraging to gold's friends.” [Yes it is...and bears watching. But the silver shares got hammered, so I'm not that encouraged. - Ed]

The Comex Delivery Report showed that 247 gold contracts were delivered on Monday...along with three contracts in silver. There are now about 2,240 gold contracts left to deliver in June...that's up about 50% since first-day notice at the end of May...a fairly large increase. I also note that, out of the blue, there are now suddenly another 211 silver contracts standing for June delivery. That's up from only a handful just last week. There have been 382 silver contracts delivered in June already...so it's been a pretty busy month in silver...considering that June is a non-delivery month for the metal. So it's a safe bet that there will be many more contracts added for delivery before the end of the month arrives. This could get interesting.

In other gold and silver news, there were no eagle updates over at the U.S. Mint's website...and no changes in GLD or SLV either. Over in Switzerland at the Zürcher Kantonalbank, there were some changes to their gold and silver stockpiles. Their big pile of gold bars got heavier by 24,979 ounces...and their mountain of silver added 570,966 ounces. At the Comex-approved warehouses, silver inventories climbed a smallish 261,184 ounces. I thank Carl Loeb for those numbers.

I have four stories today, and since I'm still in Vancouver at the gold show, I'll keep my preamble to each article to a minimum.

The first story is from Bloomberg. The headline reads..."Medvedev Questions Dollar as World Currency, Open to Yuan Swaps". Another brick in the wall for the U.S. dollar. The link is here.

In a Reuters story, the headline reads..."Top China banker calls for U.S. sales of yuan bonds" and the link is here.

Here's a good, but fairly long read from the New York Times...which I thank Craig McCarty for sending along. It's entitled "The Economy is Still at the Brink" and the link is here.


And lastly is another piece by Ambrose Evans-Pritchard from The Telegraph in London...which I 'borrowed' from the King Report. It's entitled "The depression quietly deepens"...and the link is here.



All the perplexities, confusion and distress in America arise not from the defects in their constitution or confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation. - John Quincy Adams

So...what will today bring? Frankly, I don't have a clue. There was good liquidation of the tech fund longs in both metals on Friday...and more on Monday. But if the bullion banks are intent on cleaning out the speculative longs, the 50-day moving averages are still some distance away in both gold and silver. As was mentioned earlier, it didn't seem [at least to me] that 'da boyz' were around during the New York Comex session yesterday...or if they were, they weren't trying too hard. Today is the cut-off for Friday's Commitment of Traders, so it might get interesting.

See you on Wednesday morning.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.


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