Casey's Daily Resource Plus - June 27, 2009

In Today's Edition

• Precious metals do little - Slow week results in only marginal price changes.
• Dollar declines - China renews call for different currency.
• Crude slips - Positive developments in Nigeria.
• Base metals mostly lower - Re-balancing on the way.

The Price of Things Resource Last 1 Week Ago 3 Months Ago 1 Year Ago Gold 939.80 934.70 935.00 917.20 Silver 14.09 14.19 13.54 17.18 Platinum 1201.00 1205.00 1143.00 2053.00 Palladium 245.00 244.00 220.00 467.00 Copper 2.28 2.24 1.83 3.88 Nickel 7.09 6.76 4.33 9.72 Zinc 0.50 0.50 0.50 0.87 Uranium 54.00 53.00 42.50 57.00 Oil 69.00 69.00 53.40 140.00 Gas 3.95 4.04 3.93 13.10

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Precious Metals

Gold had a very dull day on Friday, rising from Hong Kong through to the first hour in New York, peaking at $948, then getting sold off to the noon hour, where it bottomed at $937, then going essentially flat to the finish at $939.00/oz., up all of 10 cents. For the week, gold tacked on just over half a percent.

Platinum pushed as high as $1210 in European trading, but fell gently from there to the noon hour, before leveling off the rest of the day to end at $1197/oz., up $12. For the week, platinum dropped a third of a percent.

Silver rose from the far East to the open in New York, topping out at $14.30, then also declined to the noon hour and went still, creeping to a close at $14.07/oz., up 8 cents. For the week, silver lost eight-tenths of a percent.

It could hardly have been a more blah day, not to mention a blah week, for the precious metals.

One might have expected better on a day of declining dollar value, but crude also fell and, with month’s and quarter’s end rapidly approaching, it’s about time for portfolio managers to perform their acts of legerdemain known as re-balancing. So you can expect just about anything to happen.

James Moore, of TheBullionDesk.com, wrote that “given the scale of longs already in place and the slow pace of physical demand, gold is still vulnerable to profit taking short-term and may look to consolidate in the $910 to $950 area before pushing towards $1000 again”

Still, gold managed to notch its first weekly gain in the past four, as at least some investors, confronted with the weak dollar, record-low interest rates, and declining equities showed a preference for the historic storehouse of value.






Currencies and Economic News

In the currency market, the dollar lost some more ground to the euro. Late Friday, the euro was trading at $1.4068 vs. $1.3991 on Thursday.

China took center stage as Marketwatch.com reported that “the People's Bank of China's annual financial stability report repeated an earlier call by central bank chief Zhou Xiaochuan for the development of a new super-sovereign currency that would largely take the place of the dollar...

“The Chinese central bank's comments come after Chinese government officials had played down concerns over the dollar's reserve-currency role following a visit to China by U.S. Treasury Secretary Timothy Geithner earlier this month.

“ ‘There may be signs here of tensions mounting between the PBOC's economic concerns over China's holdings of dollars and the Chinese government's diplomatic reasons’ for toning down their criticism, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

“The central bank is ‘still clearly worried about the longer-term opportunity cost of holding dollars -- in as much as it can cite the dollar's role in the global economy as one of the main reasons for the financial crisis -- while the Chinese government is still more happy to play to the tune of the Bernanke-Geithner camp which sees leaning against the wind in order to protect the U.S. dollar as a necessary evil,’ he said.”

The day’s hard number was from the Commerce Department, which said U.S. personal incomes jumped 1.4% in May due to the one-time stimulus checks, leading the savings rate to jump to a 15-year high.

But all Sal Guatieri, an economist for BMO Capital Markets, had to say to that was: “Personal tax cuts and government income support have brought consumers back from the dead, but the recuperation period promises to be a lengthy one.”




Energy

In the energy market on Friday, crude for August delivery slipped, closing at $69.16/barrel, down $1.07. July reformulated gasoline lost 2.42 cents, to $1.8741/gallon.

Crude wrapped up its second straight week of decline, as traders seem to have turned sour on the prospects of recovering global demand. For the month, however, oil is still up more than 3%.

“The latest oil price increase to over $70 a barrel is not justified by current fundamentals, [although] it cannot be ignored that the oil market has improved,” wrote analysts at Commerzbank. “The underlying demand remains week.”

In a potentially positive development the Movement for the Emancipation of the Niger Delta, or MEND, say they are studying an amnesty offer announced by Nigerian President Umaru Yar'Adua, but will turn in their heavy weapons by the August 4th deadline stipulated in the document.

The group, however, objects to the term “amnesty,” saying that, “We are not criminals. Amnesty is offered to criminals and people that have been convicted. We are fighting for our rights, carrying guns fighting to protect our fathers’ land. What we are suffering from is marginalization, slavery, oppression. We accept the peace, and are ready to lay down our arms, so the amnesty itself is just a mix of language.”

In the natgas arena, the fuel continued its forward and back movement, posting a loss on the week, with July futures shedding 2% to finish at $3.949 per million British thermal units.






Base Metals

The base metals were nearly all in the red on Friday. Copper was in the green until just after the New York open, then plummeted to the noon hour, before rising a bit late in the day to finish at $2.2724/lb., down 2¾ cents. Nickel rose until mid-morning and, though it sold off from there, still managed a positive close at $7.0949/lb., up more than 6½ cents. Zinc was flat until mid-morning, but fell off to end at $0.704/lb., down 2¼ cents. Aluminum fell for most of the day, dropping a penny and a third, to $0.7312/lb., while lead was modestly lower, shedding about a penny, to $0.7667/lb.

Copper led the bulk of the industrial metals lower, as the slide in equities weighed on the sector, along with investor profit-taking that could be prolonged into early next week as both the month and the quarter come to an end, with their attendant portfolio re-balancing to come.

With, in addition, prices at “over-extended levels,” Zachary Oxman, managing director with TrendMax Futures in Encinitas, California, sees the “downward price pitch to extend down toward $2.18-$2.20 support in the coming week.”

As to what lies ahead, one might hope there’d be more agreement, but there isn’t.

“There is no doubt we have seen the bottom in terms of the industrial cycle,” said Dan Smith, a Standard Chartered analyst in London. “The investor inflows into the complex have been pretty strong. People continue to believe in the commodity story as a long-term investment play.”

On the other hand, “I think weaker demand and continuing production from mines is going to push prices down over the summer,” said Charles Kernot, an analyst at Evolution Securities.

Kernot said that while hopes for an economic recovery may lend some support to copper, he expects this support will fade once data starts revealing a slowdown in Chinese imports.

And he believes income gains will have only a temporary effect on the economy. “Personal income is only going up because of the fiscal impetus,” he said, “so personal income will come down again and we can assume the savings rate will carry on up because of huge debt. That's bad news as far as the recovery and any increase in metals demand is concerned.”




Resource Stock Roundup

It was yet another quiet Friday trading session on the Canadian Markets. For the tale of the tape, the TSX Exchange added 0.33%, while the TSX Gold Index gave back 2.1% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, tacked on 0.77% with the advancers edging out the decliners by a 410 to 359 margin on a weak 131 million shares traded.

Potash Corp. of Saskatchewan finally came clean on its second quarter profit estimates in the wake of weak demand for potash. The world’s largest producer of potash now expects to earn $0.70 per share in the second quarter a big drop from its earlier guidance of $1.10 to $1.50. Potash ended the day down C$0.71 at C$107.34.

Western Canadian Coal saw its fourth quarter revenue rise 48 percent to C$111,684,000 from the sale of 346,000 tonnes of coal. Earnings for the period ended March 31 came in at C$47.6 million or C$0.23 per share. Western ended the day up C$0.13 at C$2.12.

The Canada Day holiday falls mid-week so trading action heading into the end of June is expected to be on the light side. We will see what Monday’s session has in store.



The Private Placement Alert

Private placement financings are typically done on preferential terms, often providing investors the opportunities to buy shares at a discount to the market, and receive a warrant as well. In exchange, investors agree to a "hold" period of between 4 months and a year, during which they cannot sell their shares. If you are interested in participating in a private placement, contact the company directly. Typically, only high net worth individuals are allowed to participate. Below is a list of private placements announced this week...

The Private Placement Alert
Company	Symbol	Category	Gross Proceeds
Alexis Minerals Corp [ visit website ]	T.AMC	Mining	$5,828,000
Canacol Energy Ltd [ visit website ]	V.CNE	Energy	$1,500,000
Catalina Energy Corp [ visit website ]	V.CEA	Mining	$400,000
Exchequer Resource Corp [ visit website ]	V.EXQ	Energy	$25,000
Fire River Gold Corp [ visit website ]	C.FAU	Mining	$3,000,000
Golden Chalice Resources Inc [ visit website ]	V.GCR	Mining	$750,000
Kaminak Gold Corp [ visit website ]	V.KAM	Mining	$500,000
Laurentian Goldfields Ltd [ visit website ]	V.LGF	Mining	$1,700,000
Levon Resources Ltd [ visit website ]	V.LVN	Mining	$1,040,000
Maestro Ventures Ltd [ visit website ]	V.MAP	Mining	$250,000
Mill Bay Ventures Inc [ visit website ]	V.MBV	Mining	$200,000
North Atlantic Resources Ltd [ visit website ]	T.NAC	Mining	$256,000
Panthera Exploration Inc [ visit website ]	V.PNX	Mining	$372,240
Petro Vista Energy Corp [ visit website ]	V.PTV	Energy	$2,200,000
Pitchstone Exploration Ltd [ visit website ]	V.PXP	Mining	$500,000
Prize Mining Corp [ visit website ]	V.PRZ	Mining	$500,000
Rockgate Capital Corp [ visit website ]	V.RGT	Mining	$4,000,000
Rye Patch Gold Corp [ visit website ]	V.RPM	Mining	$2,000,000
Samex Mining Corp [ visit website ]	V.SXG	Mining	$600,000
Sienna Gold Inc [ visit website ]	V.SGP	Mining	$1,050,000
Solex Resources Corp [ visit website ]	V.SOX	Mining	$2,250,000
Suroco Energy Inc [ visit website ]	V.SRN	Energy	$10,000,000
Tarsis Resources Ltd [ visit website ]	V.TCC	Mining	$250,000
Teryl Resources Corp [ visit website ]	V.TRC	Mining	$525,000
Wildcat Exploration Ltd [ visit website ]	V.WEL	Mining	$150,000

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

Everything was swell in gold and silver when I went to bed early on Friday morning. I was hoping that when I got up four hours later, that both metals would be much higher in New York trading. They were...until 8:40 a.m...and that was that. From there, gold and silver basically closed on their lows of the day. And for whatever reason, gold was not allowed to close above $940 again. That's the third day in a row. Silver however, closed above $14 by a magnificent seven cents!

From the start of the trading day on Friday morning in the Far East...and until noon in New York...the dollar lost about 70 basis points. And from the start of precious metals trading in the Far East, gold and silver basically rose as the dollar fell. That relationship ended almost as soon as the New York bullion banks showed up for work.

The lousy price 'action' in gold and silver...coupled with the lousy action in the general equity markets...was all that was needed to keep the HUI and XAU in the red for the day. But, all things considered, it could have been worse.

Open interest changes for Thursday showed that gold o.i. rose 1,585 contracts to 380,283...on volume of 82,790 contracts. In silver, o.i. fell 1,085 contracts to 103,642...on volume of 39,284 lots.

The Commitment of Traders report [for positions held at the close of Tuesday's trading] showed just about what was expected. In silver, the bullion banks decreased their net short position by 3,609 contracts, but are still net short 210 million ounces of silver. The full-colour silver COT report is linked here. In gold, the bullion banks reduced their net short position by 12,938 contracts...which left them with a net short position of 19.44 million ounces. That's still a very large number. The gold COT chart is here.

That was the good news. The bad news is as follows. In the three business days since the Tuesday cut-off for this COT report, the bullion banks have increased their short position by about the same number of contracts as they improved the entire previous week...so we're basically back to where we were on Tuesday, June 16th...when the bullion banks were net short 20.7 million ounces. In silver, Ted Butler figures that since this Tuesday's cut-off, the bullion banks have put back on about 1,000 short contracts of the 3,609 that they took off in the prior week. So nothing has changed at all...and we're still well into the danger zone in both metals...particularly in gold. Check those COT graphs linked in the previous paragraph and you'll see what I mean.

Here's Ted Butler's graph of what the '2 or 3' U.S. bullion banks' short positions are in the Comex gold and silver market...versus all the other commodities. Ted says that if all the spread trades were taken out [which they should be...in order to give a true net reading], these percentage figures would be 50% higher than shown on this graph.



Yesterday's Comex Delivery Report showed that 129 gold contracts and zero silver contracts were delivered. Monday is the last day for delivery into the June contract. There are less than 100 gold contracts and a handful of silver contracts left. There were no changes in SLV yesterday, and I'm not sure about GLD, as I had trouble accessing their website. There were no changes at the U.S. Mint...and over at the Comex-approved warehouses, a smallish 67,977 ounces of silver were withdrawn.

There was nothing worth noting as far as gold and silver news yesterday. However, the two senior precious metals portfolio managers at Sprott Asset Management in Toronto were interviewed over at theaureport.com...and it's worth the read. It's entitled "Keep the Faith---Higher Gold Price Will Come"...and I thank Brad Robertson for sending it along. The link is here.

Before I get into the stories...here's a very quick read from Karl Denninger over at market-ticker.com. Karl is commenting on a story that showed up at marketwatch.com...which is linked in his commentary. It appears that "Dresdner Kleinwort Securities has withdrawn from the Federal Reserve's primary U.S. government security dealers." The Denninger commentary is entitled "SEVERELY Bearish Treasury Development"...and I thank Craig McCarty for sending it along. The link is here.

Today's first real story is from The Times in London. It was a surprise to read the headline...and an education to read the article. The headline reads "Japan on verge of sub-prime mortgage crisis as summer bonuses plunge". I stole this story from yesterday's King Report and the link is here.

The litany of woes within the U.S. real estate market just got a little larger. Here's a story that comes from the Christian Science Monitor. The headline reads "Are low appraisals slowing US home sales?" As a 27-year veteran of the residential real estate market in Alberta, I got a déjà vu feeling when I read it. The link is here.

The next item is from the Economist.com. The title pretty much indicates what the topic is..."Ageing in the rich world: The end of retirement" and it's highly recommended reading. I thank P.S. for sending me the story and the link is here.

Lastly, is a second offering from Sprott Asset Management. In their latest "Markets at a Glance" commentary, Eric Sprott and David Franklin conclude that..."the future solvency of the United States as a nation state is currently in jeopardy. It is in far deeper trouble than the mainstream press cares to admit. There are simply not enough new buyers of debt on this planet to support the spending programs of the United States government - and it appears that current holders of debt are beginning to sell." It's wonderfully researched...and if you read nothing else I've linked...this is the article you should read. It's entitled "The Solution...is the Problem"...To access it, first go here. Then on the “Manager Insights” drop-down, select Eric Sprott. Click on the May/June link.


If the bureaucracy is not checked, it will tend to build...in the name of peace...a defense against every conceivable contingency; so much 'security' that 'the secured' are without resources...helpless and hopeless. - Leonard E. Read

Today's 'blast from the past' is from 1970. I remember spinning this '45 on CHAR radio in Alert, N.W.T. way back then..almost 40 years ago now! Everyone knows it, so turn up your speakers and click here.

There's two more business days to the end of the second quarter...half of 2009 shot! What the hell happened to it? I've discovered, as I age, that life is sort of like a roll of toilet paper...the closer to the end you get, the faster it goes.

So what's next for gold? Are we going to have a spectacular upside breakout in this reverse head and shoulders pattern that's been building for the last year or so...or will it be something more unpleasant? I'd much prefer the former...but because of the COT...I fear the latter, at least in the short term.



That's food for thought while you enjoy what's left of your weekend...and I'll see you here bright and early on Tuesday 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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