Casey's Daily Resource Plus - June 25, 2009

In Today's Edition

• Precious metals little changed again - Early rallies in silver and gold snuffed out.
• Dollar gains on euro - Fed does nothing, but sounds optimistic note on economy.
• Crude drifts lower - EIA report has something for everyone.
• Base metals rally strongly - OECD raises growth forecast.

Precious Metals

Gold was near flat until the New York open on Wednesday, at which point it took off, shooting up $15 to $941, but that proved to be the high for the day, as the metal sold off through the Comex and early Globex before leveling off to finish at $931.00/oz., up $4.20. Overnight, gold is little changed.

Platinum was tightly rangebound, spending most of the day between $1160 and $1170, before dipping a little to end at $1158/oz., down a buck. Overnight, platinum is sharply higher.

The Price of Things Resource Last 1 Week Ago 3 Months Ago 1 Year Ago Gold 931.10 938.60 925.90 887.30 Silver 13.85 14.30 13.44 16.64 Platinum 1158.00 1203.00 1115.00 2012.00 Palladium 234.00 242.00 206.00 465.00 Copper 2.25 2.25 1.78 3.84 Nickel 6.93 6.73 4.33 9.70 Zinc 0.50 0.50 0.50 0.85 Uranium 54.00 53.00 42.50 57.00 Oil 68.00 71.00 53.02 136.00 Gas 3.77 4.25 4.34 13.03

Silver went on a wild rollercoaster ride, spiking up to $14.10 in early Comex trading, then hitting the same price again before falling precipitously into the afternoon, rallying and selling off one more time to finally close after all that virtually unchanged at $13.83/oz., up 2 cents. Overnight, silver has been flat.

With platinum near unchanged for the second straight day yesterday, gold and silver carried the ball, trying gamely to push higher, but to little avail, as rallies were killed and they finished with only very modest gains.

Any marked improvement in the metals’ prices were likely capped by a rally in the dollar and sliding oil prices.

The Hightower Report wrote of the day’s action in silver: “The silver market showed some positive early action in the wake of a better than expected US durable goods reading and perhaps because of the stellar bullish leadership provided by the gold market in the morning action. Like gold, the silver market didn't seem to be that interested in an initial upward bias in the US Dollar and that would seem to suggest that something other than classic currency related issues were serving to lift precious metals prices on Wednesday morning. However, a late surge in the Dollar clearly undermined gold and silver prices and that in turn virtually erased the very favorable technical action initially forged by the markets on Wednesday morning.”

Meanwhile, “Gold continues to be focused on the idea that ‘inflation will remain subdued’,” said Ralph Preston, of Heritage West Futures San Diego. And technically speaking, since gold failed to surpass key resistance at $944.40 an ounce yesterday, “prices are capped and poised to test $912 support. A push below $912 projects trending price action below $900.”

And, “What is it about the U.S. dollar that has ‘prevented’ the materialization of fresh all-time highs in bullion?” asked Kitco’s Jon Nadler. “The rather banal explanation is the fact that the world is lacking for better alternatives.”






Currencies and Economic News

In the currency market, the dollar gained ground on the euro. Late Wednesday, the euro was trading at $1.3926 vs. $1.4089 on Tuesday.

The news of the day was, of course, the FOMC meeting, at which the Fed did the expected and left interest rates alone. The committee’s accompanying statement on the economy was upbeat, saying that the downturn is slowing and deflation is no longer a big threat. Inflation, it said, is likely to "remain subdued for some time."

In addition, it did not announce any changes in its current plans to buy Treasurys and mortgage-backed assets to lower the interest rates and boost the economy.

Among the day’s hard numbers, the Commerce Department announced a better-than-expected 1.8% increase in durable-goods orders in May. Economists had been forecasting a 0.4% drop.

However, shipments of durable goods fell 2.1% in May. They are now down 19.3% in the first five months of the year compared with a year earlier, and have fallen for ten consecutive months.

Separately, Commerce said that sales of new homes dropped 0.6% to a seasonally adjusted annual rate of 342,000 in May from a downwardly revised 344,000 in April. Seasonally adjusted sales have been essentially flat since January, when they dropped to a postwar record low of 329,000. The report was weaker than expected, with economists projecting a slight increase to 363,000 annualized.

The report also said that sales are down 32.8% in the past year; inventories of unsold homes fell 2.3% in May to 292,000, representing a 10.2-month supply at the May sales rate; and median sales prices rose 4.2% in May, to $221,600, the first month-over-month increase since December.




Energy

In the energy market on Wednesday, crude for August delivery sank, closing at $68.67/barrel, down 57 cents. July reformulated gasoline lost 5 cents, to $1.843/gallon.

In its weekly inventory report, the Energy Information Administration said that crude stockpiles fell 3.8 million barrels in the week ended June 19. That was three times analysts’ expectations for a decline of only 1.2 million barrels.

Gasoline supplies went in the other direction, increasing by 3.9 million barrels last week, while distillates rose by 2.1 million barrels. Refineries were operating at 87.1% of capacity, up from 85.9% the previous week, and the highest level since early December.

While the supply data was "mixed," said Tariq Zahir, managing member at Tyche Capital Advisors, "we do feel both the crude and gasoline markets could see a downward correction in the next few weeks as demand is looking weak."

But since “crude-oil stocks went down as much as gasoline stocks increased … This report could set up a battle between the bulls and the bears,” said James Williams, of WTRG Economics.






Base Metals

The base metals were all glowing green on Wednesday. Copper rose from the pre-dawn hours to just after noon in New York, then eased for the rest of the day, finishing at $2.2554/lb., up 7 cents. Nickel followed copper’s path exactly, ending at $6.9324/lb., up 28¾ cents. Zinc was roughly similar, closing at $0.7108/lb., up 2¾ cents. Aluminum was strongly higher, adding nearly 2 cents, to $0.7312/lb., while lead had a very good day, tacking on 2½ cents, to $0.7606/lb.

Copper led the industrial metals sharply higher as, according to Bloomberg, “the Organization for Economic Cooperation and Development raised its growth forecast and U.S. durable-goods orders unexpectedly increased, boosting the demand outlook for the metal.

“The combined economy of the 30 OECD members will grow 0.7 percent in 2010, the group said today, raising its estimate for the first time in two years …

“ ‘The global economy has a good shot at a rebound,’ said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. ‘The big picture is looking good for copper’.”

Smith added that he expects demand from emerging economies including China and India to remain strong. “The sell-off was a temporary situation for copper and it was just a normal correction in a bull market,” he said.

Though the optimists were winning the daily war with the naysayers, the base metals’ upward trajectory abruptly came to an end with the release of the Fed’s cautionary statement.

However, if the Fed fails to convince investors it can control inflation “without snuffing out signs of a recovery by raising interest rates,” there may be “further money flow into commodities as an inflation hedge,” wrote Leon Westgate, of Standard Bank Group Ltd. in London.

On the stockpile front, copper inventories monitored by the LME declined another 1,225 metric tons yesterday, to 275,050 tons.




Resource Stock Roundup

The resource rich Canadian Markets rebounded with a vengeance during Wednesday trading. For the tale of the tape, the TSX Exchange added 2.06%, while the TSX Gold Index climbed another 2.8% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, tacked on 1.53% with the advancers edging out the decliners by a 397 to 350 margin on 151 million shares traded.

Sherritt International and its partners on the Ambatovy nickel project in Madagascar have determined how to fund the $4.52 billion project. Sumitomo, Korea Resources and SNC-Lavalin have agreed to lend Sherritt its 40 per cent share of the remaining development costs. Sherritt ended the session up C$0.26 at C$5.27.

Shares of West Timmins Mining and Lake Shore Gold exploded upwards on news of an 83.4 metre drill intercept returning 12.75 grams gold per tonne on the Thunder Creek joint venture project in Ontario. West Timmins, which owns a 40 per cent stake, added C$0.58 to C$1.60, while Lake Shore gained C$0.46 to close at C$2.90.

Moving in the other direction were shares of Appleton Exploration. The junior tabled the final results from its Manalo gold project in Mali with the highlights including 7.53 grams gold per tonne over 1 metre. Appleton’s stock ended the day down C$0.185 at C$0.195.

Hathor Exploration cut 9.64 per cent U308 over 13.5 metres in the latest results from the Roughrider zone on its 90-per-cent-owned Midwest Northeast property in Saskatchewan. Hathor added C$0.07 to close at C$1.93

The resource bulls were back in charge but with more economic news pending, the bears are surely just waiting in the wings. We will see what Thursday trading has in store.





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

Gold's low price for the day came early in Hong Kong trading on Thursday morning. From there, and in fits and starts, the gold price managed to work its way slowly higher later in the Hong Kong afternoon...and into morning trading in London. But the real fireworks didn't get started until 8:00 a.m. Eastern time...shortly before the Comex opened for trading...and at 9:00 a.m. [sharp], gold was up $15 before the usual not-for-profit seller showed up. After that, every rally attempt got firmly sold off, so that by the end of electronic trading at 5:15 in New York yesterday...gold was only up about six bucks.

Silver's moves were even more dramatic...and it was obvious that someone was there to make sure that its price was not allowed to go vertical...which it gave clear indications of doing a couple of times. The first time [along with gold] was 9:00 a.m. [sharp] in New York...and the second time was moments before London closed two hours later. By the time the smoke had cleared at the end of New York trading...silver was up a magnificent three cents. Nothing to see here folks...please move along.

I'm not sure if this upside activity in both metals was new buyers showing up...or shorts covering their positions. It has to be one or the other...or a combination of both...and a clear indication of either won't be known until the open interest figures are out later this morning. Since it occurred on Wednesday, this activity will not be in tomorrow's COT report. We'll have to wait until next Friday.

All of this price activity occurred during a big rally in the US$ that lasted about 14 hours and added about 1.10 cents to the 'value' of the greenback. This was a bit of a surprise...considering the gold/dollar relationship that existed on Monday and Tuesday. The precious metals shares found yesterday's activity to their liking, and managed to hold most of their gains into the close of trading. I was impressed. Options expiry for both gold and silver is at the end of trading today, so it could get interesting.

Open interest for Tuesday showed that gold o.i. fell 4,623 contracts to 370,347...on total volume of 103,165 contracts. Silver o.i. fell 1,145 contracts to 105,699...on chunky volume of 45,190 contracts. These numbers should be reflected in the COT tomorrow.

The Comex Delivery Report showed that 107 gold contracts were delivered...and there was nothing in silver. Neither the GLD or SLV showed any changes...and there were no changes over at the U.S. Mint. However, at the Comex-approved warehouses, I see that silver inventories jumped a pretty large 1,902,590 ounces. That's three big rigs filled to the top.

A couple of gold stories today. The first is from the Indian website commodityonline.com. The headline reads "India June gold imports may dip by 50 percent". For any of my fine readers who don't know this fact...India is by far the largest gold market in the world. This story gives an excellent in-depth look into that market. I highly recommend you take the time to read it. The link is here.

The usual New York gold commentator had this remark yesterday...and a story to back it up..."After a number of days of double-digit US$ premiums for local gold in Vietnam, stories are gratifyingly appearing that smuggling has started again." The story [posted at english.vietnammet.vn] is entitled "Chinese jewelry smuggled into Vietnam"...and the link is here.

I have a three other stories worth your while today. The first two are courtesy of Bill King over at the King Report... and the first of which is a Bloomberg story about Japan's export slump...which has just gone from bad to worse. Exports in May dropped 40.9% compared to one year ago. Japan is imploding. The story bears the headline "Japan Export Slump Deepens, Casting Doubt on Recovery" and the link is here.

The second is from the Financial Times in London. It looks like the bear market rally in emerging market economies is over. [Can the rest of the world's bourses be far behind? - Ed] The headline reads "Russian market sell-off breaks 20% level" and the link is here.

And lastly comes this short Reuters story headlined "Lawmaker accuses Fed of 'cover-up' in BofA deal"..."Documents showed the Fed tried to keep secret information about the Bank of America deal from the Office of Comptroller of the Currency, the North Carolina-based bank's direct regulator, and from the Securities and Exchange Commission" [And some still try to deny that the Fed helps rig the gold market - Ed] The link is here.

Talk about perfect timing. On June 12th, just as Russia's Sarychev Peak volcano was erupting for the first time in 20 years, the International Space Station flew directly overhead. Astronauts had their camera ready and snapped one of the most dramatic earth-science photos ever taken from space. This photo was lifted from the home page of spaceweather.com The accompanying story is worth the read and the link is here.



What is called the 'private sector' of the economy is, in fact, the voluntary sector; and what is called the 'public sector' is, in fact, the coercive sector. - Henry Hazlitt

Yesterday's action in both precious metals...in the face of a big jump in the US dollar...was a surprise to a lot of people, including this writer. And as I fire this off to my editor in the wee hours of Thursday morning, I see that both gold and silver are still in positive territory in early London trading. As I mentioned earlier, Thursday is options expiry in both gold and silver, so today's trading activity in both metals could be exciting to watch.

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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