The Price of Things Resource Last 1 Week Ago 3 Months Ago 1 Year Ago Gold 825.40 811.90 904.70 666.70 Silver 13.46 13.22 17.46 11.73 Platinum 1429.00 1357.00 2115.00 1248.00 Palladium 289.00 282.00 441.00 327.00 Copper 3.50 3.43 3.80 3.39 Nickel 9.35 8.92 10.70 12.36 Zinc 0.82 0.77 0.97 1.42 Uranium 64.50 64.50 60.00 90.00 Oil 116.41 114.74 128.31 71.08 Gas 8.39 8.10 11.79 5.40

In Today's Edition

Gold was little changed until London opened, when it rose to an intraday high of $835, but then spent the rest of the day trading weakly, finally finishing at $826.20, up $2.20. Overnight gold is trending higher.

Platinum was up in the European market, but traded rangebound in New York, ending with a nice gain at $1429/oz., up $34. Overnight, platinum has been pushing higher.

Silver was also up strongly in the overseas markets, but fell more steeply and was unable to stay out of the red, closing at $13.46/oz., down 11 cents. Overnight, silver is sharply higher.
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Although platinum did well, and gold was up slightly, silver dropped and, overall, precious metals fanciers couldn’t have been very happy with the outcome of the day’s action, since the falling dollar and rising oil should have been more supportive.

The Hightower Report summarized: “The gold market forged a series of stair steps down from the early morning highs but generally gold prices seemed to prefer positive ground. Clearly the weakness in the Dollar failed to live up to initial expectations for the bull camp and that wasn't surprising considering that the US Durable Goods report was better than most expectations. Surprisingly the gold market didn't seem to get a definitive added lift from what seemed to be escalating geopolitical tensions between Russia and the EU. Some gold traders suggested that until the September Dollar Index consistently trades below the 77.00 level, the currency impact for gold might not be definitively supportive.”

Gustav was much on everyone’s mind.

Gold can be expected to benefit if there is any disruption to oil supplies created by the hurricane.

But the turmoil in the weather is equaled by the turmoil in the financial markets.

With widespread expectations that a number of banks, including perhaps some major ones, may yet fail, “Gold is benefiting from systemic fear,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Systemic fear is what's kept gold off its lows.”

Silver, though, remains shaky. It has fallen 9% this year, compared with gold’s decline of less than 1%. Analysts at Scotia Capital USA wrote yesterday that until silver trades above $14, the metal will be vulnerable to further declines.

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In the currency market, the dollar sank against the euro. Late Wednesday, the euro was trading at $1.4727 vs. $1.4644 on Tuesday.

The buck weakened as European Central Bank council member Axel Weber said discussion about a reduction in interest rates in the eurozone is “premature.”

“The ECB is trying to correct some of the easing expectations in 2009,” said Brian Dolan, chief currency strategist at FOREX.com. “Oil is going to be bid up again. The dollar will have to give up some of its gains over the rest of the week.”

Matthew Kassel, of ING Financial Markets in New York, added that, “In order for the euro to go lower, the market has to see an indication of ECB rate cuts, which require inflation to come lower … We are finding equilibrium.”

The day’s hard number was the Commerce Department report that orders for U.S.-made durable goods surged in July, rising 1.3% on strong transportation equipment demand. Economists’ expectations had been for a gain of merely 0.2%.

Meanwhile, the Federal Deposit Insurance Corp. may have to borrow money from the Treasury to maintain working capital as it bails out depositors in failing banks. The number of banks on the FDIC’s problem list has grown by 30%, according to a report in the Wall Street Journal.

And, in what will likely prove to be very wishful thinking, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said that, “Although recent measures of inflation are higher than I would like to see, I would say that recent price increases are more likely to be transitory than persistent … I expect that CPI inflation will peak near the July level of 5.6%.”

In the energy market Wednesday, crude for October delivery pushed higher, closing at $118.15/barrel, up $1.88. October reformulated gasoline added 9.8 cents, to $3.0672/gallon.

Traders were watching Gustav closely, as it threatened to become the most powerful storm to enter the Gulf in 3 years, with the potential to cause damage to production there.

“There is nothing in Gustav's path that will hinder development,” said John Kocet, senior meteorologist at AccuWeather.com. “There is a strong probability that it will be a Category 3 storm by the time it enters the Gulf, and it has the potential to strengthen into a Category 4 or 5 storm over the Gulf.”

Supply declines also factored in. In its weekly inventory report, the Energy Information Administration said that crude supplies fell by 100,000 barrels for the week ended August 22.

Gasoline supplies also fell, down by 1.2 million barrels, while distillates were unchanged, the IEA said. Refineries were operating at 87.3% of capacity last week, up from 85.7% the previous week.

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The base metals were mostly in positive territory on Wednesday. Copper was up sharply to mid-morning before tailing off, but still finished with a gain at $3.5031/lb., up more than 3½ cents. Nickel pushed higher through most of the day, closing at $9.3455/lb., up more than 30 cents. Zinc was down in the pre-dawn hours but recovered nicely, ending at $0.8144/lb. up more than 2 cents. Aluminum traded jaggedly, finally dropping a third of a cent to $1.2317/lb., while lead shot higher all day long, adding 8½ cents to its intraday high of $0.9342/lb.

The industrial metals were mostly higher on the back of the increase in energy, as traders sought them as hedges against inflation.

The falling dollar and the surprising rise in durables orders also factored in.

The latter “adds fuel to the fire and is playing into the bullish sentiment today that is helping copper,” said Michael Gross, an analyst at OptionSellers.com in Tampa, Florida.

However, Gross added, this could be a “short term bounce.”

“Things in the euro-zone are looking pretty bad,” he said. “Though the dollar is weaker today, we expect that it will resume its gain against the euro and that will pressure copper longer term.”

Meanwhile, lead posted its biggest gain in six weeks as traders decided to load up at depressed price levels. Previously, lead had fallen 27% so far this year, the worst performance among the base metals.

But things may be turning around, as evidenced by the fact that China, the largest producer of lead, became a net importer in July, indicating strong demand for the metal in its domestic market. Refined lead imports rose 137% last month in July, from the year ago period, according to customs data.

LME-tracked lead inventories fell 3,050 tons, or 3.5%, to 83,375 tons yesterday. That’s the lowest level since June 16.

Current Market Indices:

The resource rich Canadian markets were in rally mode during Wednesday trading as the price of oil and gold gained ground. For the tale of the tape, the TSX Exchange tacked on 1.74%, while the TSX Gold Index climbed 2.2% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, added 0.38% with the declining issuers beating out the advancers by a 427 to 419 margin on volume of 119 million shares traded.

Venezuelan gold miner Rusoro Mining went shopping and elected to put a bid in on Gold Reserve. The offer is two Rusoro shares for each Gold Reserve share for a value of about $90 million. Gold Reserve came out swinging saying that the offer is inadequate given its cash position and its 10.2 million ounces of gold and 1.4 billion pounds of copper at its Brisas project in Venezuela. Rusoro ended the day unchanged at C$0.80, while Gold Reserve closed up C$0.10 at C$1.58.

A state clean water initiative aimed to stop development of the huge Pebble copper-gold project in Alaska has gone down to defeat. This is good news for all Alaskan explorers and especially for shares of Northern Dynasty Minerals, which rallied C$1.14 to close at C$6.67.

On the energy front, shares of Transeuro Energy added C$0.125 to close at C$0.395 after the junior reported that joint operations are under way to test the deeper shales in the Liard basin in northeast British Columbia.

More rough earnings came out from the Canadian banks during Wednesday and indications are the financial crisis for the banks are far from over. We will see what Thursday trading has in store.

From Ed Steer:

There wasn't much to comment on in gold and silver action in the Far East until London opened for business on Wednesday. Then prices rose until the London silver fix was in at 7:00 a.m. New York time. Then both metals got sold off. The silver price bottomed a couple of hours later, but gold worked its way down slowly to its low, which was almost at the end of regular trading in New York.

There wasn't a lot of volume yesterday, so I wouldn't read much into this. Options expiry in the OTC for both precious metals is today...with first day notice for September silver delivery being tomorrow. For the most part, this week's activity in the gold and silver markets has been a big yawner.

The usual NY gold commentator had the following to say about Wednesday's market..."India is clearly an extraordinarily eager importer of gold at present. Reuters carries another confirming story today: ‘Demand has been phenomenally high. It has been around 20 days since demand revived,’ said Mayank Khemka, managing director of Khemka International Pvt Ltd, a New Delhi-based trader…Reflecting gold's popularity, supply shortages have persisted in India with premiums up to $6 an ounce and delays in deliveries of up to a week, dealers said.

"Yesterday's (Tuesday) violent struggle – a $24 range and an up $2.40 Comex close – saw open interest rise a fairly significant 4,634 lots (14.4 tonnes). Hard to diagnose except to say both sides are aggressive.

"Gold today (Wednesday) was at one time $834.90 in the middle of the European day but was as usual wrestled down some $7 in NY to close up $5.90. Volume was moderate by today's standards – estimated 106,204 contracts.

"It should be noted the Indians are regularly accepting world gold in the $830s, even before the bloated premiums they face are considered."

I see in a Wall Street Journal story yesterday that the "Federal Deposit Insurance Corporation (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures...The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. That the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis." Sounds like another bailout to me!

The first story today is from The Telegraph in London. The author, as usual, is Ambrose Evans-Pritchard. He comments that "rule changes for Chinese commercial banks are acting as cover for exchange rate intervention." The story is headlined "Beijing swells dollar reserves through stealth". It sounds as boring as hell...but I urge you to take the time to read it, as it indicates one of the reasons why the US$ has been rising...and the dire straits into which the Chinese economy has fallen as of late. The link is here.

The second story today is a GATA release with a long editorial introduction by its secretary treasurer, Chris Powell. Chris is an editor in real life...the senior editor at the Journal Enquirer in Manchester, Connecticut...and it reminds me of that early 20th century adage that you should never get into a fight with someone who buys their ink by the barrel. Chris is at the top of his game as he takes Mike Shedlock of Sitka Pacific Capital Management to task for his latest commentary. There's lots to read, so top up your coffee and then click here.

Governing a large country is like frying a small fish; you spoil it with too much poking. - Lau Tsu

I see that Casey Research is having an online 'webinar' on September 12th at 3:00 p.m. EST. The best part about it is that it's F-R-E-E. It features Doug Casey, David Galland, Bud Conrad and Terry Coxon. Needless to say...I highly recommend it. To register...click here.

Tomorrow is Friday...and the end of the month. I expect the usual gaming in the equity markets in the next couple of days...none of which will mean anything. This is another August that I'll be glad to see behind us.

Talk to you on Friday.

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