The Hightower Report

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OUTSIDE MARKET DEVELOPMENTS: Equity markets in Asia and Europe are generally weaker this morning, and U.S. stock indices have posted moderate losses during the early Tuesday trade. The Dollar is generally weaker against the major currencies during overnight trading, although posting a moderate gain against the Pound. The Japanese Prime Minister will face a leadership challenge in an upcoming political party election. France has sent a proposal for stronger EU regulation of commodity markets to the European Commission. Japanese Industrial Production during July was up 0.3%, higher than forecasts. Japanese Retail Sales were up 3.9% year-on-year, higher than expectations. Euro zone Unemployment during July was 10.0%, unchanged from last month and in-line with forecasts. German Unemployment during August was 7.6%, unchanged from last month. UK individual borrowings during July were 300 million Pounds, much weaker than expectations. A private survey of UK Consumer Confidence during August rose to -18, slightly higher than forecasts. US economic numbers released this morning include a private survey index of Home Prices at 8:00, a private survey of Purchasing Managers in the Chicago area at 8:45, and a private survey of Consumer Confidence at 9:00 AM.

GOLD MARKET FUNDAMENTALS: The gold trade continues to waffle between support off the uncertainty in the global economy, and concerns of spiraling deflation. Some gold traders think that gold is set to be undermined in the face of weak economic data points ahead, but the real test will be the post-report trade action in gold. European gold traders seemed to be partially undermined by the initial weakness in equity prices today, and that would seem to suggest that deflation concerns are present again in the marketplace. A recent decline in volume is thought by some traders to be a sign that the month and a half rally in gold prices is starting to discourage some buyers, but the bulls could spin that argument around and suggest that volume seems to be declining on down days in prices. At least in the early action today, the trade seems to be poised to take a large amount of direction from the FOMC meeting minutes to be released later in the trading session. Comex Gold Stocks were 10.817 million ounces, down 63,029 ounces. Gold stocks have declined 15 of the last 20 days. Comex Gold stocks are at the lowest in the past 10 readings.

SILVER MARKET FUNDAMENTALS: The bear camp is probably a little emboldened by the weak action on the charts in the early Tuesday US silver trade, as silver prices reached the lowest level since August 25th. News of a fresh silver find from a Canadian silver miner is probably not a major impact on silver prices today, as silver recently hasn’t paid that much attention to physical supply side stories. After showing some leadership within the precious metals complex last week, some traders suggest that silver prices might have become short term technically overbought off last week’s action, and therefore the bull camp in silver would seem to need help from the scheduled data flows today. Like gold, silver seems to be getting less lift from economic uncertainty, and that suggests physical commodity market fundamentals might be regaining importance in the marketplace. Comex Silver Stocks were 110.758 million ounces, down 386,235 ounces. Stocks have declined 11 of the last 20 days.

PLATINUM: The platinum market appears to be tracking physical commodity market fundamentals during a period of slowing growth expectations. With the October platinum market reaching a partially overbought level yesterday and temporarily forging the highest price level since August 19th, it isn’t surprising to see prices this morning in the midst of a noted range down extension. Weaker equities and a negative tone toward the economy would seem to give the platinum bears the edge, but the bull camp might suggest that any favorable surprise from the data front this morning could catch the platinum market in an overly bearish fundamental posture.

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OUTSIDE MARKET DEVELOPMENTS: With equity markets in Asia and Europe generally weaker, U.S. stock indices are trading lower during the early Friday trade. The Dollar is stronger against most of the major currencies during overnight trading. A member of the European Central Bank council stated that assistance to Euro zone banks should continue through the end of 2010. The Finance Minister of Japan stated that they are communicating with other G7 nations about the strength of the Yen. The Chinese government will officially encourage more foreign institutions to issue Yuan-denominated securities. A private survey of Japanese retail investor sentiment fell to an 8-month low, mainly due to the strength of the Yen. There are no major US economic numbers to be released this morning.

GOLD MARKET FUNDAMENTALS: With the slowing mentality in place this morning, the gold market still seems to be underpinned by the fear of further slowing but there doesn’t appear to be much in the way of fresh economic news from the overnight headlines. Some traders have suggested that gold is supported by statements from the ECB, that they would leave easing in place through the 1st quarter of 2011. With some rather significant gains already posted this week, the gold market might be showing some technical balancing action this morning with the initial setback in prices. With a mostly empty US economic report slate today, the gold market might have to take its cues on the economy from the action in the US equity markets. It is also possible that part of the early profit taking in gold this morning is the result of a recovery in the US Dollar against the Euro and a host of other currencies. At least in the near term, the gold market looks to embrace the fear of slowing and the flight to quality angle as the primary market focus. Comex Gold Stocks were unchanged at 10.964 million ounces. Stocks have declined 11 of the last 20 days.

SILVER MARKET FUNDAMENTALS: The failure to see September silver contract forge new highs for the move this week, in the wake of the range up action in the gold market, has apparently disappointed some traders as silver this morning is flirting with new lows for the week in the early Friday trade action. Apparently silver is feeling its physical commodity market roots this week, in the face of the recent economic letdown. With the US Dollar also showing signs of strength this morning, it is possible that silver and other physical commodity markets are feeling some currency related pressure as well. Comex Silver Stocks were 110.992 million ounces down 37,482 ounces. Stocks have declined 12 of the last 20 days.

PLATINUM: October platinum comes into the trading session in a technical chart failure and at the lowest price level since the August 12th spike low. Like silver, the platinum market is concerned about unchecked economic slowing. Therefore, we see little reason for October platinum to avoid a slide back to even numbers at $1,500. In fact, in the face of a downside extension in equities, October platinum might fall all the way down to consolidation support at $1,489.

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A number of developments have surfaced in recent weeks that have boosted the appeal of gold. The most recent one comes out of China, where the government introduced policy changes that would encourage development of the country’s gold market. Some of these new measures would allow the four biggest state-controlled banks to trade gold bullion. As it currently stands, China is the world’s largest producer of gold and holds the number two spot behind India for consumption. These new measures would add more foreign members to the Shanghai Gold Exchange to foster greater liquidity while also permitting these banks to hedge gold positions. In short, greater development of China’s gold market provides a big future demand boost for gold.

It is also interesting that this development has occurred while U.S. growth prospects have been scrutinized and China has sought alternatives for its growing foreign exchange reserves. Recent chatter out of the US Federal Reserve Bank has opened the door for a new round of quantitative easing that would keep interest rates at extremely low levels. One such maneuver was highlighted in a Wall Street Journal article this week that suggested the Fed would use interest income from its portfolio of mortgage-backed securities to purchase additional securities or Treasury bonds. This threat has aroused further concerns over deflation and the monetization of debt. As a result of this fear, investors have been accumulating gold as a store of value.

Some cash traders noted a pick-up in the physical demand for gold as prices traded under $1200/ounce.

From a technical perspective, October gold is in the process of putting in an intermediate low. Prices established new contract highs in late June at $1267.10 and subsequently sold off to a late July low of $1157.50. That break also came with a drop in open interest that reduced some of the speculative participation in gold. This makes it ripe for a bullish turnaround. Interestingly, the July price low corresponds almost exactly with a 50% retracement of the February to July rally. Therefore, we see significant support at $1156.70 level, and as a result we believe the late July lows could prove to be a significant turning point for gold.

In addition, the market has penetrated the downtrend channel from the June highs, which also supports the idea that a low is in place. Traditional technical indicators were also oversold at this level as well.

On top of all of these positive forces, the market experienced all-time record high volume on the July 28th hook reversal lows, and this came in conjunction with a very small range. In other words, the market ran out of new sellers. We would expect gold to forge a rally back to the June highs at $1267.10 and potentially to another swing higher to $1306.70.

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OUTSIDE MARKET DEVELOPMENTS: Asian stocks indices finished the week on a positive note with the Japanese Nikkei showing an impressive +2.25% rally on the day. European stocks are trading fractionally higher, with a cautious tone as Euro bank stress test results are set to be released today. U.S. equities are higher to start after trading above Thursday’s highs. Economic data released over the last 24 hours has come in better than expected, and that has weighed on the U.S. dollar. A record monthly jump in German sentiment figures to new three year highs coupled with optimism for solid German bank results have carried the Euro higher. Second quarter U.K. GDP figures showed 1.10% growth on the quarter, and that news seems to have rallied the British Pound against the U.S. dollar. Some traders viewed the robust U.K growth results as putting pressure on the Bank of England to boost interest rates. The focus of the day remains on the Euro zone bank stress test results and whether they meet positive expectations already priced into the markets.

GOLD MARKET FUNDAMENTALS: The gold market seems to be poised to start the Friday US trade out on a positive footing. Apparently the gold trade is cheered by favorable economic readings from the UK and Germany. Some traders are sticking by the idea that the European Bank Stress tests results are a reason to be long gold. In fact, some traders are suggesting that the market might have built in very favorable results from the stress tests and therefore almost any sign of trouble within the reports today might be a reason to kick up flight to quality instruments again. However, seeing the UK 2nd quarter GDP growth come in at twice the expected growth rate and seeing a historically big single month jump up in the German Ifo seems to have improved the macro economic outlook today and in turn taken the markets attention off the noted slowing fears in the US economy. In short, gold appears to be tracking its physical commodity market fundamentals this morning and that could mean that equity market action could be as critical as action in the Dollar. With the Dollar showing some weakness this morning, it would appear that gold is also seeing some currency market support. Comex Gold Stocks were 11.114 million ounces down 550 ounces.

SILVER MARKET FUNDAMENTALS: The silver market is showing marginal interest in the upside in the early going today with the trade generally looking over its shoulder to the action in the equity markets. Certainly minor weakness in the Dollar is lending some support to silver but silver has spent a lot of time this week mirroring the action in the US equity markets. With more favorable US corporate earnings news overnight and very favorable international economic news, it would seem like the physical commodity market track is presenting a positive case to the silver trade this morning. Silver might also have been bolstered this morning by news of a couple bullish silver forecasts from private entities overnight. Comex Silver Stocks were 110.937 million ounces up 193,009 ounces. Silver stocks have declined 12 of the last 20 days.

PLATINUM: The platinum market comes into the action today with a distinct upside breakout on the charts. Since the break out rises above a well defined consolidation high zone that alone could prompt stop loss buying. With a private brokerage report coming out bullish on platinum prices and the outlook toward the Euro zone improved, it is possible that platinum is simply playing catch-up today. Initial resistance is now seen at $1,550 and critical support moves up to $1,541.00.

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OUTSIDE MARKET DEVELOPMENTS: While equity markets in Asia and Europe are generally higher this morning, US equity indices are reflecting small losses during the initial Thursday morning trading action. The Dollar is moderately higher against most of the major currencies going into the US opening today, with minor losses to the Pound and Canadian. The US Treasury avoided naming China as a currency manipulator in their semi-annual report on exchange rate policies. The Bank of Korea raised benchmark interest rates for the first time since 2008. The President of the European Central Bank said that he did not feel that budget cuts would put the EU back into a recession. The German Consumer Price Index for June was up 0.9%, in line with forecasts. French Industrial Production for May was up 1.9%, above forecasts. The UK Producer Price Index for June was 5.1% year-on-year, lower than expectations. The UK Foreign Trade Deficit for May was 8.1 billion Pounds, higher than forecast. The only major US economic number scheduled for release today will be Wholesale Trade for May, at 9:00 AM.

GOLD MARKET FUNDAMENTALS: In general, the gold trade continues to fear a further tamping down of flight to quality sentiment, as the flow of patently discouraging news from the Euro zone this week has been accentuated by some positive US economic news flow from the US. With US ongoing claims technically forging a downside breakout on the charts yesterday, some traders jumped to the conclusion that the US economy was holding together better than recent expectations. With a pattern of gains in US equities also seen this week, an improved macro economic view was given added credence and that in turn tamped down uncertainty. The gold market apparently doesn’t know how to handle news that the White House seems to have given the Chinese a temporary pass on being tagged as a currency manipulator, perhaps because certain members of Congress are still committed to taking action against China. It is also possible that a series of interest rate hikes from Asia overnight were seen as a negative by some gold traders. While the US report schedule today only contains a Trade Balance release, that report should temporarily distract the gold market away from its recently acquired infatuation with the action in the US equity markets. Comex Gold Stocks were 10.959 million ounces up 63,802 ounces. Comex Gold Stocks have reached another new record high level.

SILVER MARKET FUNDAMENTALS: The silver bulls have to be discouraged this week as gains in a host of physical commodities this week were not accompanied by strength in silver prices. Clearly the silver market favored the flight-to-quality focus this week instead of its classic physical commodity market fundamentals. With another Canadian silver miner overnight expected to float record/increased output, the classic supply side fundamentals in the silver market could be seen as a detriment to prices, but demand not supply seems to be the dominating force in determining silver prices lately. The bull camp might suggest that a consolidation around this week’s lows might offer up support around the $17.61 area today, but the bear camp could point to the inability to sustain prices above the even number $18.00 level as a sign of ongoing weakness. Some traders think that upbeat US Fed statements overnight and news of rate hikes from Asia overnight are also serving to limit silver prices. Comex Silver Stocks were 114.502 million ounces up 602,288 ounces. Stocks have declined 11 of the last 20 days.

PLATINUM: The platinum market continues to diverge with gold and silver, and in the process has cast its lot with the recovery crowd. In other words, platinum is behaving like a classic physical commodity in the face of gradually improving macro economic sentiment. However, gains off this week’s lows have been rather muted and that leaves the bulls with only minimal confidence. With the middle of the last month’s consolidation zone seen up at $1,550, that is a logical target/resistance point for the October platinum contract. However, we aren’t sure that the trade is going to see as much favorable economic news today as it was presented with yesterday. Therefore, we are a skeptical bull for the trade today.

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We had some very bad US data again today, but Treasuries weren’t been able to extend sharply to the upside, which leads us to believe that we might be near a major inflection point. While the Euro zone situation isn’t fully solved by any measure, we think their debt contagion has been moved to the back burner and that the slowing of the US economy and its soaring deficit problem might become the media’s new obsession. With the battle lines drawn in the recent G20 meeting, the US is already setting the stage for divergent policy decisions. Perhaps the US leadership was already aware of the vulnerable status of the US economy, but since Washington won’t do standard textbook stimulus efforts the US might be in for a return-to-recession status.

The world has already bid Treasuries into the stratosphere due to their flight to quality status and because of evidence of US slowing. But today the Treasury rally seemed to run out of gas, and the US Dollar appears to have finally caved in. This suggests to us that world sentiment is changing and that further slowing in the US could mean a flight from the US Dollar and from US Treasuries. While gold was down sharply today, the world might have little choice but going to gold because of the almost total absence of a sturdy currency.

It would appear that the US will now be forced to provide more quantitative easing or perhaps even another stimulus package. Since the current US Administration would rather shoot itself in the foot than to utilize standard economic principles in their easing programs, it is possible that US Treasuries and the US Dollar are poised to go from the “penthouse” to the “outhouse.” In our opinion the Democrats won’t/can’t change their principles of only helping those who don’t have a job, are not wealthy and don’t work on Wall Street. This means the Democrats are going to be faced with market action ahead that could insure a house cleaning in the November elections.

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OUTSIDE MARKET DEVELOPMENTS: Equity markets in Asia and Europe are mostly weaker this morning, which has led to US stock indices posting sizable losses during the initial Tuesday morning trade action. The Dollar is much stronger against most of the major currencies, but has lost ground versus the Yen going into the US opening. There is concern that European banks may have trouble paying bank 442 billion Euros in emergency 1-year loans due this week. A large revision in the April Chinese Leading Indicators, from +1.7% to only +0.3%, might have triggered a huge sell off in Chinese equity markets today, but other sources suggested an upcoming China AG bank IPO might have caused selling to raise cash for the new IPO. Tropical Storm Alex is expected to be upgraded to a hurricane later today, and it is tracking northwest into the Gulf of Mexico. Japanese Unemployment for May was 5.2%, higher than expected. Japanese Industrial Production for May was also down 0.1%, lower than forecast. The major US economic numbers scheduled for release today is a private survey of Consumer Confidence for June, to be released at 9:00 AM. The market will also see a private US Home Price survey.

GOLD MARKET FUNDAMENTALS: A large portion of the sharp drop in the London gold fix overnight is a catch up to the slide seen in the US Monday afternoon action. After the gold market generally ignored news of a decline in Peru gold production in the prior trading session, it is possible that the gold market will also ignore news this morning from Gold Fields of a rise in 4th quarter gold production. Recently the gold market has discounted or downplayed physical supply side stories in favor of the ebb and flow of investment/physical demand news. It is also possible that ongoing concerns for slumping Indian gold imports is serving to temper sentiment toward gold. On the other hand, flight to quality sentiment is apparently present in the Treasury and currency markets this morning and that might be providing some indirect support to gold prices regardless of the sloppy early track in prices this morning. Comex Gold Stocks were 10.861 million ounces down 1,397 ounces. Stocks have now declined in 12 of the last 20 days.

SILVER MARKET FUNDAMENTALS: The September silver contract this morning took out the prior two sessions lows in the early action today and that would seem to leave the bear camp emboldened. Apparently both silver and gold are missing out on the flight to quality view that is serving to lift US Treasuries this morning. If the Treasury market is rising off the fear of global or US slowing, that could be turning up the liquidation pressure on silver from its physical commodity market standing. While the silver market might be seeing some weak selling pressure from fears of slackening Indian silver imports, the silver market isn’t usually that interested in Indian silver import data. In the end, weakness in a host of physical commodity markets this morning could be spilling over into the silver market. Comex Silver Stocks were 114.929 million ounces up 547,748 ounces.

PLATINUM: The Platinum market is in the midst of a big range down extension, but apparently the October contract found some form of support at the even number $1,550 level. With fresh buying interest seen in the most recent positioning reports, it is possible that platinum might see bargain hunting buying increase on the coming slide in physical commodity prices. Until the macro economic outlook improves, we think that would-be buyers should wait for a slide to at least $1,526 in the October platinum contract before getting long for a position play.

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OUTSIDE MARKET DEVELOPMENTS: Equity markets both in Asia and Europe have been higher this morning, which has led to US stock indices posting sharp early gains during overnight trading. While off of its lows, the Dollar has been weaker against most major currencies during overnight trading but has gained versus the Yen. Over the weekend, the People’s Bank of China announced that the Chinese currency, the Yuan, would be allowed more flexibility in valuation and they also removed a 23-month long peg against the Dollar. Although officials continued to stress that change would be gradual, the Yuan has made both its largest one-day rise and highest close in 5 years today. An internal document from BP indicates a worst-case scenario that the Gulf oil spill could be leaking 100,000 barrels per day. The European Central Bank called for EU nations to have tougher budget rules and allow for external monitoring. There are no major US economic numbers scheduled for release today.

GOLD MARKET FUNDAMENTALS: The bull camp has to be somewhat happy with the initial action in gold today, as gold has held together somewhat in the face of developments that could have sparked an aggressive liquidation in gold prices. Apparently the Chinese indicated they would allow for a more flexible currency and that in turn has seemingly dampened interest in flight to quality instruments. With gold in the US action managing to waffle around both sides of unchanged in the early action today, it almost seems as if broad based interest in physical commodities is in some way providing minimal support to gold prices. It is also possible that some analysts will suggest that China could buy more gold with a stronger currency and it is also possible that some economists will see the Chinese news as an export of Chinese growth to the rest of the world. The gold market could also have been pressured this morning by talk that Saudi gold reserves were double what the trade had previously been factoring. However, the bull camp might try to shape that news into a positive by suggesting that many countries might be poised to hold more gold in the wake of the historical financial uncertainty facing the markets. Comex Gold Stocks were 10.795 million ounces down 431 ounces. The Commitments of Traders Futures and Options report as of June 15th for Gold showed Non-Commercial traders were net long 265,983 contracts, an increase of 2,515 contracts. The Commercial traders were net short 316,452 contracts, an increase of 5,349 contracts. The Non-reportable traders were net long 50,468 contracts, an increase of 2,833 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 316,451 contracts. This represents an increase of 5,348 contracts in the net long position held by these traders.

SILVER MARKET FUNDAMENTALS: The silver market has apparently found support from its physical commodity roots this morning, as the apparent downtick in safe haven sentiment has not undermined silver prices. In fact, silver prices are clearly outperforming gold this morning, as silver seems to be tracking with industrial metals and the global equity markets instead of gold and the US Treasury markets. After seeing a flight to quality track at times last week, the upside extension in silver prices this morning suggests that this market is able to rally off a number of different themes. Exchange Silver Stocks at the end of last week were pegged at 117.695 million ounces down 600,295 ounces. Silver stocks have increased in 13 of the last 20 days. The Commitments of Traders Futures and Options report as of June 15th for Silver showed Non-Commercial traders were net long 40,647 contracts, an increase of 3,368 contracts. The Commercial traders were net short 57,664 contracts, an increase of 2,335 contracts. The Non-reportable traders were net long 17,017 contracts, a decrease of 1,033 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 57,664 contracts. This represents an increase of 2,335 contracts in the net long position held by these traders.

PLATINUM: Like a number of physical commodity markets platinum is clearly being lifted by the Chinese statements overnight. However, in looking at the platinum action on the charts this morning, it would seem like platinum is skeptical of the bullish attitude. In fact, July platinum made a distinct gap up move initially but has given back all of the early gains. We can’t rule out an attempt to rally today, but we think that July platinum is a sell above the $1,600.00 level. The Commitments of Traders Futures and Options report as of June 15th for Platinum showed Non-Commercial traders were net long 15,841 contracts, an increase of 329 contracts. The Commercial traders were net short 18,875 contracts, an increase of 546 contracts. The Non-reportable traders were net long 3,034 contracts, an increase of 217 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 18,875 contracts. This represents an increase of 546 contracts in the net long position held by these traders.

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OUTSIDE MARKET DEVELOPMENTS: Equity markets in Asia and in Europe have been mostly higher overnight, which helped US stock indices to post solid gains as we approach the US opening. The Dollar is mostly weaker this morning against the major currencies, although it was able to have a small gain against the Yen. As rumored in yesterday’s markets, China’s trade surplus during May was roughly $19.5 billion, much higher than forecasts and up nearly 50% from last year’s levels. Chinese exports were also significantly higher as was expected by the trade yesterday. Fed Chairman Bernanke said that the US economic recovery was on solid footing, but growth in job creation would lag. The Federal Reserve Beige Book indicated that economic conditions improved throughout all 12 of the Federal Reserve districts last month, although the pace was modest in some areas. Several US senators have proposed legislation that would put pressure on China to revaluate their currency against the Dollar. The United Nations approved a new round of sanctions against Iran, due to an escalation of their nuclear program. BP announced that a containment cap placed on a leaking oil well in the Gulf of Mexico had increased the amount of oil it was capturing. An auction for Spanish 3-year bonds was well received by the market as the issue saw solid demand. Japanese GDP was up 1.2% for the first quarter, in line with expectations. German CPI was up 1.2% during May, in line with market forecasts. Today’s US economic calendar includes April International Trade and Weekly Jobless Claims, both released at 7:30 AM. The final leg of the monthly US refunding, the 30-year bond auction, will have results announced at 12:00 PM.

GOLD MARKET FUNDAMENTALS: With a favorable Spanish auction result overnight, a much stronger than expected Chinese export tally and an upward bias in many global equity markets, it would seem like the flight to quality angle in gold is still being tamped down in the early trade today. In looking back to the prior trading session, the gold market saw comments from the US Fed Chairman that pointed to the potential for serious ramifications if the US didn’t move to get its fiscal house in order, but yet that type of news was unable to provide a positive bid for gold prices. In fact, news of another decline in South African gold production overnight of 6.2% from the prior month is apparently of little interest to the gold trade this morning. The market might also be under some pressure as a result of comments from China suggesting that the gold market was too small to garner investment allocation from the Chinese currency fund. However, since China also showed a noted rise in gold reserves held by the People’s Bank of China, it is possible that the potential lack of allocation from the Chinese currency reserve sector might be discounted. However, the main focus of the gold market still seems to be locked onto the ebb and flow of European debt fears and it would appear that we are seeing a lack of fresh anxiety on that front this morning. Comex Gold Stocks were 10.797 million ounces down 460 ounces.

SILVER MARKET FUNDAMENTALS: At least in the early going today, the silver market seems to have attached its wagon to the gold market again. Apparently moderately higher equities and generally positive action in the industrial metals markets is of little benefit to silver. In other words, the silver market is apparently seeing some selling off a further decline in flight to quality psychology. Even a higher energy market this morning has failed to provide support to silver and that isn’t surprising considering the recent heavy dependency of flight to quality potentials. Technical traders might note that July silver has remained below its 50 day moving average in the Thursday morning trade. Comex Silver Stocks were 117.630 million ounces down 831,599 ounces. Stocks have increased 12 of the last 20 days.

PLATINUM: With the platinum market showing positive progression early this morning, it is clear that platinum and copper are both behaving like physical commodity markets facing a slight improvement in macro economic expectations. However, it is difficult to suggest that platinum is poised to soar through resistance at $1,550 unless the equity market really extends on its initial gains. In short, we see short covering and a minor amount of fresh outright buying but without a more definitive end to the Euro zone debt fears, we have to suggest that bulls remain skeptical toward the upward track in platinum prices.

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OUTSIDE MARKET DEVELOPMENTS: Equity markets in Asia and Europe have moved lower during overnight trading, which in turn put US equity indices under pressure going into the opening. The Dollar is sharply higher against the European currencies, but has lost ground versus the Yen. BP announced that their “top kill” method was unable to stop the large oil leak in the Gulf of Mexico. The Chinese official Purchasing Managers Index came in at 53.9, in line with expectations but that was a fall of 1.7 from the April figure. The Chinese Premier warned that Euro debt problems could threaten global economic growth, but also suggested that Chinese growth remains on track. The European Central Bank warned of a second wave of bank losses overnight, as well as announcing an increase of Euro Zone bond purchases. Euro Zone Unemployment was 10.1% during March, in line with expectations. Canadian GDP was up 6.1% during the first quarter, which was stronger than expected. US economic numbers this morning include March Construction Spending and the April ISM Index, both released at 9:00 AM.

GOLD MARKET FUNDAMENTALS: Somewhat surprisingly the gold market this morning is benefiting from revived Euro zone debt contagion fears and that seems to have pulled the market out of its recent physical commodity market focus. Apparently the markets keyed in on ideas that Euro zone banks were facing another wave of potential loan losses off the financial crisis and that in turn fostered an initial wave of flight to quality buying of gold overnight. Somewhat surprisingly the gold market also seemed to benefit from news of a decline in a Chinese purchasing Managers index overnight and that also seemed to break down the gold markets recent link to its physical commodity market standing. With the focus seemingly centered on financial or flight to quality issues this morning, it is unlikely that gold prices this morning are being directly lifted by news that Russian gold production, in the first four months of 2010, almost dropped by 8% over the prior year’s figures. Comex Gold Stocks were 10.737 million ounces up 643 ounces. The Commitments of Traders Futures and Options report as of May 25th for Gold showed Non-Commercial traders were net long 253,330 contracts, a decrease of 21,439 contracts. The Commercial traders were net short 296,099 contracts, a decrease of 28,198 contracts. The Non-reportable traders were net long 42,769 contracts, a decrease of 6,760 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 296,099 contracts. This represents a decrease of 28,199 contracts in the net long position held by these traders.

SILVER MARKET FUNDAMENTALS: With some negative divergence being seen this morning between silver and gold prices, one could get the impression that silver is set to act like a physical commodity market facing a renewed threat of global slowing off the travails in the Euro zone. News that the Chinese economy might be slowing down a touch, would seem to catch industrial commodities like silver in a vulnerable condition this morning, especially in the face of a rather significant rise in the US Dollar. Just to add insult to injury, the bull camp in silver also saw evidence of rising silver production from Mexico, as March 2010 Mexican silver output increased sharply over year ago levels. Tempering some of the potential negative impact from the recent silver production news, were somewhat favorable demand forecasts from Gold Fields Mineral Services. Comex Silver Stocks were 119.061 million ounces up 540,062 ounces. Comex Silver Stocks are at the highest levels since 09/18/2009. The Commitments of Traders Futures and Options report as of May 25th for Silver showed Non-Commercial traders were net long 36,398 contracts, a decrease of 8,863 contracts. The Commercial traders were net short 54,011 contracts, a decrease of 8,590 contracts. The Non-reportable traders were net long 17,614 contracts, an increase of 274 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 54,012 contracts. This represents a decrease of 8,589 contracts in the net long position held by these traders.

PLATINUM: Like silver, the platinum market forged a higher high on the charts this morning before reversing course. With the markets fearful of renewed slowing off the Euro zone debt travails and the trade also presented with talk that the Chinese economy might be slowing, the path of least resistance in platinum prices is probably set to point downward. Critical support is seen in the July contract is seen down at the $1,532 level, but a return to $1,500 can’t be discounted in the current environment. The Commitments of Traders Futures and Options report as of May 25th for Platinum showed Non-Commercial traders were net long 15,019 contracts, a decrease of 8,039 contracts. The Commercial traders were net short 18,107 contracts, a decrease of 8,824 contracts. The Non-reportable traders were net long 3,087 contracts, a decrease of 786 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 18,106 contracts. This represents a decrease of 8,825 contracts in the net long position held by these traders.