Casey's Daily Resource Plus - June 26, 2009

In Today's Edition

• Platinum catches a spark - Gold, silver up modestly.
• Dollar backs off - Jobless numbers unexpectedly jump.
• Crude pushes higher - More violence in the Niger Delta.
• Base metals climb again - Optimists riding the wave.

Precious Metals

Gold was dead flat until an hour before New York opened on Thursday, at which point it commenced a daylong rally that pushed it higher, albeit not very dramatically, as it plodded to a finish at $938.90/oz., up $6.80. Overnight, gold is trending higher.

Platinum finally constructed a solid day, adding $20 during the Comex session and ending at $1185/oz., up $27. Overnight, platinum is pushing higher.

The Price of Things Resource Last 1 Week Ago 3 Months Ago 1 Year Ago Gold 939.30 931.80 934.60 885.80 Silver 13.99 14.17 13.50 16.74 Platinum 1187.00 1201.00 1121.00 2003.00 Palladium 243.00 239.00 209.00 460.00 Copper 2.30 2.25 1.77 3.87 Nickel 7.03 6.78 4.25 9.80 Zinc 0.50 0.50 0.50 0.83 Uranium 54.00 53.00 42.50 57.00 Oil 70.00 71.00 51.99 134.00 Gas 3.87 4.08 4.32 12.68

Silver buyers kept appearing after every selling spell, slowly inching the metal higher, and it closed just off its intraday highs at $13.99/oz., up 16 cents. Overnight, silver is sharply.

A strong day for platinum, though hardly a banner one for the other precious metals. Nevertheless, gold and silver both finished comfortably in the green.

The day’s disappointment had to be that gold and silver didn’t do even better, considering that the usual suspects were leaning in their favor, with the dollar declining against the euro and oil sharply higher.

Analysts also suggested that there was some speculation that record low interest rates—left in place by the Federal Reserve on Wednesday—will spark some demand for the metal as an alternative investment. The Fed said that rates are likely to remain at “exceptionally low levels” for an “extended period.”

Kitco’s Jon Nadler said of the Fed’s decision: “While the Fed's take on the US economic situation reveals a central bank that is encouraged by the signals being broadcast from various sectors, it also shows that when it comes to hiking interest rates in order to avoid deleterious inflationary effects from recent liquidity injections, the time is...well, it is not now.”

How far will inflation be allowed to run, and how far the dollar allowed to fall? These are key questions.

In another comment supporting a higher gold price, Commerzbank analysts wrote that, “It is likely that China will buy further gold over the coming months and years, as, in contrast to other countries, gold still accounts for only a small proportion of China's entire foreign exchange reserves.”

Many in that country agree. China should buy gold rather than U.S. debt because the Fed’s policies make dollar depreciation inevitable, Li Lianzhong, a senior Communist Party official, told a conference in Beijing yesterday.




Currencies and Economic News

In the currency market, the dollar lost ground to the euro. Late Thursday, the euro was trading at $1.3991 vs. $1.3926 on Wednesday.

“Equity and commodity markets advanced, encouraging rotation out of the greenback,” said analysts at Action Economics.

Also noted was that, “The dollar has been driven over the last two days by central bank activity. One is the Swiss National Bank, which appears to be continuing its buying of dollars,” said Meg Browne, a currency analyst at Brown Brothers Harriman.

The Swiss National Bank is publicly committed to stemming any haven-related appreciation in the franc, but as to what it may be doing, said that it doesn't comment on intervention rumors.

However, the franc’s strength has proven “increasingly self-sustaining,” says Ashraf Laidi, chief market strategist at CMC Markets in New York. It has attracted support because of “broadening risk aversion, short-lived dollar strength and emerging doubts” about euro-zone banks,” Laidi said.

The day’s hard number was from the Labor Department, which said the number of U.S. workers filing new claims for jobless benefits unexpectedly rose for the week ended June 20 by 15,000, to 627,000. Ccontinuing claims—those drawn by workers for more than one week—climbed 29,000, to 6,738,000. Both numbers had fallen the previous week.




Energy

In the energy market on Thursday, crude for August delivery was higher, closing at $70.23/barrel, up $1.56. July reformulated gasoline rose 5.58 cents, to $1.8983/gallon.

“It seems oil is rallying with stocks,” said Zachary Oxman, managing director at TrendMax Futures. “There are no major supply demand issues present.”

However, traders were also reacting to the weaker-than-expected inventory report from Wednesday, and to further violence in Nigeria.

The Movement for the Emancipation of the Niger Delta, or MEND, claimed responsibility yesterday for a predawn attack against Royal Dutch Shell facilities, calling it a warning to Russia not to invest in the African country's oil and gas industry, according to Dow Jones Newswires.

The attack on the Bille-Krakama pipeline, which feeds the key Bonny export terminal in southern Rivers State, was carried out to coincide with a visit to Nigeria by Russian President Dmitry Medvedevk, MEND reportedly said.






Base Metals

The base metals were all smiling again on Thursday. Copper was down until just before the New York open, then took off, peaking north of $2.31 near noon, before sliding a bit to finish at $2.2996/lb., up nearly 4½ cents. Nickel was like a yo-yo all day, but with an upward bias, ending at $7.0292/lb., up 9 2/3 cents. Zinc pushed steadily higher from the late pre-dawn hours on, closing at $0.7267/lb., up more than a penny and a half. Aluminum had a good day, adding a penny and a third, to $0.7448/lb., while lead filled out the plus column, tacking on a penny and a half, to $0.7761/lb.

Copper led the industrial metals higher as analysts saw more budding economic optimism, along with strong momentum among the technical indicators.

On the economic front, “Whenever any kind of good data comes out, people like to think that they are seeing some ‘green shoots’ for the economy,” said Gijsbert Groenewegen, a Gold Arrow Capital Management partner in New York. “The idea of the better growth has made people buy copper.”

However, Copper’s 64% gain this year may be “unsustainable” as prices have “gotten ahead of demand,” Groenewegen said. “People are just looking at these numbers through rosy glasses and not seeing that even though they are slightly better, things are still weak … People are oblivious to what’s really happening in the underlying economy.”

And over on the technical side, “When we took out [Wednesday’s] high ($2.3020 a lb), that was significant and we saw more upside interest in the market once that occurred,” said Larry Young, of Infinity Futures in Chicago.

But, Young added, “Keep in mind we have the end of the second quarter coming up next week and have had a really good quarter in terms of the metals, so I wouldn't be surprised to see prices sell off maybe by tomorrow or early next week as some funds book profits.”

RBC Capital Markets takes a look at the tea leaves and sees mush, writing that, “Closed arbitrage windows between the Shanghai and London Metal Exchange markets, the summer slowdown and speculation that China's SRB may be looking to sell copper continue to muddy the short-term picture.”

But on the stockpile front, copper inventories monitored by the LME declined another 3,450 metric tons yesterday, to 271,600 tons, the lowest level since mid-November.




Resource Stock Roundup

The resource bulls continued to trample the bears during Thursday trading on the Canadian Markets. For the tale of the tape, the TSX Exchange added 2.52%, while the TSX Gold Index climbed another 4.5% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, tacked on 1.14% with the advancers edging out the decliners by a 411 to 374 margin on a weak 123 million shares traded.

Teck Resources cut its 2010 copper production forecast by 13 percent because of geotechnical issues at its Highland Valley mine in British Columbia. Copper production estimates for next year now stand at 755 million pounds down from the previous 870 million pounds, while this year’s output from Highland Valley drops by 12 percent and by 2010 output hits 187 million pounds, a 38 percent drop. Teck ended the day down C$0.07 at C$18.43.

In a case of tax dollars being put to work, Adroit Resources is set to receive C$603,633 from the Provincial Government of British Columbia as compensation for the 1995 expropriation of its Amber mineral claims to make way for a Park. The Supreme Court of British Columbia also ordered the Government to pay Adroit's legal costs and to pay interest on the monetary award from July, 1995. The total award is expected to be more than C$1.4 million. Adroit ended the day unchanged at C$0.11.

International Tower Hill tabled an updated resource for its Livengood project in Alaska. Using a 0.3 gram gold per tonne cutoff, the indicated resource tallies nearly 235 million tonnes grading 0.69 gram gold per tonne and the inferred camp tallies north of 280 million tonnes running 0.59 gram gold per tonne. International ended the day up C$0.13 at C$3.45

Shares of Sabina Silver added C$0.06 to close at C$0.99 after the company announced a drill intercept of 26.2 percent zinc and 457 grams silver per tonne over 8.8 metres at its Hackett River silver-zinc project in Nunavut.

Starfield Resources continued to get no trading action following word that it is taking over fellow junior Nevoro. The friendly all-share transaction would see each Nevoro share exchanged for a 0.87 of a Starfield share. Starfield ended the day down C$0.015 at C$0.16, while Nevoro cloased flat at C$0.125.

Weaker job numbers out of the United States failed to damper investor appetite for equities. We will see what Friday trading has in store.





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

It was a very uneventful Thursday...at least as far as gold and silver prices were concerned. Both metals rose and fell gently from the beginning of Thursday's trading in the Far East...right up until the London silver fix 13 hours later...which is noon in London and 7:00 a.m. in New York. By that time, their respective prices were both back to almost unchanged on the day. But once the silver fix was in, gold tacked on about $7...and silver gained around 16 cents by the end of New York trading at 5:15 p.m. A certain amount of this rise may have had something to do with the falling US dollar...which began its descent shortly before 11:00 a.m. in New York.



The only happening of note, was that every attempt by gold to breach $940...or silver to break above $14...was quietly turned back. That happened during Wednesday's trading as well...but with much more force. Options expiry passed very quietly, and with no fanfare at all. Therefore, the options written at those two strike prices expired out of the money, and whatever bullion bank had written these options contracts...or those at a higher strike prices...pocketed the commission. This sort of gaming happens all the time, and not just with silver and gold either.

The gold and silver shares were on fire yesterday, and their large gains surprised even me. As the usual New York commentator put it yesterday morning..."The HUI closed up 4.95% and the XAU up 5.75%...essentially at their highs, with the June downtrends decisively broken." [Is something up? - Ed]

Open interest changes for trading on Wednesday show that the big price spike in gold was caused by more longs being placed...probably by the tech funds [with the bullion banks taking the short side]...as o.i. rose a large 8,351 contracts to 378,698...on huge volume of 128,516 contracts. In silver, o.i. actually fell 972 contracts to 104,727...on a monstrous [for silver] 63,743 contracts...so it's likely that silver's price rise was a short covering rally...as this is what this decline in o.i. usually means. But 'da boyz' can hide a lot of things by placing or removing spread trades to cover their tracks.

Thursday's Comex Delivery Report showed that 151 gold contracts were delivered, along with 5 silver contracts. Based on yesterday's CFTC report, there are around 200 gold contracts and maybe 5 silver contracts left to be delivered in June. They only have today and Monday to get it done...as first day notice [and delivery] for the July contract is on Tuesday, June 30th. GLD was down 5.5 tonnes...about 176,700 ounces. There were no changes in SLV. There was another update from the U.S. Mint. There were no changes in silver eagles, but they pounded out another 10,000 gold eagles, bringing the June total to 113,000. And over at the Comex-approved warehouses, silver inventories declined 678,158 ounces.

The usual New York commentator had some interesting observations posted about what Dennis Gartman had to say yesterday morning..."In a revealing comment, The Gartman Letter, which had been sympathizing with those wishing to short gold, admits to being surprised by the action of the past couple of days. [So was I. - Ed] But it adds: 'What we do know is that there is substantive selling in gold between $980-$1000, for that area has stopped gold from advancing several times over the course of the past year. It stopped gold in July of last year; it stopped gold in March of this year; and it stopped it again in [at the end of] May. Who, or what, is there to sell gold is unimportant to us. What is important is that it has been stopped there again and again, and until that “stopper” is itself stopped from selling, or has finished its selling...being long is a mugs...or rigged...game. We know not which.' This is progress of a sort. Given TGL's role in the gold conspiracy controversies, it's a brave statement."

From the King Report on Thursday..."Yesterday, the European Central Bank pumped a record $662 billion into its money market. Even more startling is the 1% funding is good for 12 months. Analysts note that funding is nearly what the ECB has already provided for shorter periods. So the ECB is really extending terms more than boosting credit."

I have four stories today...one about real estate...and the other three are all gold-related in one form or another. The real estate story [courtesy of the King Report] is from Wednesday's Washington Post. Here is another ticking time bomb in real estate that isn't getting the attention it deserves...owners way behind on their mortgage, but the banks haven't had the time, money, or manpower to foreclose yet. It's a longish piece headlined "Not Paying the Mortgage, Yet Stuck With the Keys" and the link is here.

The next story is by Michael J. Kosares, the proprietor of USAGOLD-Centennial Precious Metals Inc. It's entitled "Dragon's Hoard"..."In one fell swoop, China profoundly alters gold market synergy" and the link is here.

Gold story number two is a Reuters piece filed from Beijing...and posted at the Interactive Investor in the U.K. "China should buy more gold because the dollar is poised for a fall and the metal is needed to support the greater international role envisaged for the yuan, a senior researcher with the ruling Communist Party said on Thursday." The headline reads something like that as well...and the link is here.

And lastly is a piece by one of Casey Research's own...Louis James...Senior Editor of the International Speculator. I read everything that Louis writes...and I highly recommend you do the same. The article is entitled "Beware of Zombies Wearing Lipstick" and is posted at kitcocasey.com. The link is here.

The free market punishes irresponsibility. Government rewards it. - Harry Browne

So...where to from here...now that options expiry, the FOMC meeting, and the U.S. Treasury's bonds have been downloaded to other central banks around the world? Can we go up from here? Sure...but in order to do so, the bullion banks will continue piling on short positions against all longs...and get to even more obscene levels than they are now. Can they get overrun...crash and burn? Yes, but not likely. Could we go down from here? Yep. Retail gold and silver bullion sales are way down...and for all intents and purposes, the Middle and Far East are not importing any precious metals worth mentioning. Gold and silver into the ETFs has slowed markedly...so where's the demand?

However...speaking with my GATA hat on...gold and precious metal prices have been controlled by government and/or the banks for almost all of recorded history. Nobody knows what the free market price of either of these metals really are...but I can guarantee you that they are several [if not many] orders of magnitude larger than they are now.

My very good friend [and GATA compatriot] Bill Murphy over at lemetropolecafe.com said in his commentary yesterday afternoon that "Gold [is] Poised to Gap Up and Soar". From your lips, to God's ears, Bill. Maybe that's what the shares have been telling us for the last couple of days. I'd love that to be the case. But I'm prepared for any outcome...and so should you.

I note, as I put the finishing touches on this report, that gold is finally trading over $940...and silver is over $14. Will it stay that way? Hope so! I don't like being a bear and crying "wolf"...but that's what the Commitment of Traders shows...and up to this point, it's been 100% accurate. So I'm not about to say that "this time it's different"...because it may not be. But like I said earlier, I'd love to be wrong...as I can eat humble pie with the best of them...as long as I've got a good bottle of wine to wash it down with.

All of us at Casey's Daily Resource Plus hope you have a great weekend and we'll see you here on Saturday morning.

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



Casey's Daily Resource Plus

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