Spot gold touched a high of $946.90 in London — last seen in mid-June — up from $938.55 quoted late on Thursday in New York. The metal stood at $946.65 by 1134 GMT.

Global stocks rallied while the dollar fell against a basket of currencies, bolstered by a return to risk-seeking behaviour after remarks by the U.S. Federal Reserve convinced investors that borrowing costs would stay near zero and the debt-buyback programme would continue apace.

The weaker U.S. unit also made dollar-denominated gold cheaper for holders of foreign currencies.

The precious metal, viewed as a potential hedge against inflation, also got a boost from steady oil prices as supply concerns held crude above $70 a barrel.

Analysts said that gold was rallying on the weaker dollar and end-of-quarter deals, despite weak fundamental demand.

“From a fundamental perspective at least, $945 is a very good position for gold to be entering the second half of the year,” said Nick Moore, head of commodity strategy at RBS Global Banking and Markets.

RECOVERY PLAYS

Higher base metal prices, which have soared since the start of the year, could encourage investors to switch out of their holdings in gold to take advantage of higher demand for raw materials ahead of any economic recovery, analysts said.

“I’m concerned there will be more appetite for other things, and gold could get neglected if people want equities, energy and industrial metals,” said Robin Bhar, an analyst at Calyon.

“Next week is a new quarter, which could be associated with fresh investment flows into plays on the recovery,” he added.

Copper prices are up about 60 percent on the year, while aluminium used in transport and packaging is on track for its biggest monthly gain since May 1988.

Inflows into gold-backed exchange-traded funds waned, reflecting weak fundamental demand for gold from retail investors and the jewellery market.

Holdings at the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust , fell 0.5 percent to 1,125.74 tonnes as of June 25, down 5.5 tonnes from the previous business day.

U.S. gold futures for August delivery strengthened to $946.8 an ounce, rising 0.8 percent on the day.

In other precious metals, spot silver firmed to $14.25, against $14.01 quoted late in New York on Wednesday, while platinum climbed to $1,199.00, against $1,186.00 and palladium strengthened to $243.50 from $242.00.

London, June 26 (Reuters)

Gold fell on Friday as investors sold assets after data showed a much larger-than-expected fall in U.S. November non-farm payrolls.

A sharp dip in the dollar in the immediate wake of the numbers initially sent gold higher, but it quickly gave up gains as the U.S. currency reversed direction.

The precious metal is often bought as an alternative investment to the dollar and tends to move in the opposite direction to it.

Spot gold was quoted at $752.30/754.30 an ounce at 1427 GMT, against $765.70 late in New York on Thursday, having earlier touched a low of $747.20.

“(The data) shows a worsening economic situation, and it is hard for assets to maintain value against that,” said John Meyer, an analyst at Fairfax investment bank.

U.S. non-farm payrolls fell by 533,000 in November, sending the unemployment rate to 6.7 percent, the highest since 1993. Analysts had predicted payrolls would fall by 340,000.

The other main external driver of gold, crude oil, also weighed on the precious metal, as prices dropped nearly 2 percent to below $43 an ounce.

Sharp falls in the crude price this week have sent oil down to a near four-year low. Weaker oil prices can undermine interest in commodities as an asset class, analysts say.

DEFLATION EYED

Interest in gold is being limited by expectations inflation will fall after sharp drops in the price of many raw materials such as crude oil and industrial metals.

Oil prices have shed more than $100 a barrel since they hit an all-time high of $147.27 an barrel in July, while prices of copper, aluminum and tin have also declined sharply.

“Mounting fears over the impact that a potential period of deflation may have on prices, appear to be weighing on sentiment,” said Standard Bank analyst Leon Westgate in a note.

Among other precious metals, silver fell along with gold, and was quoted at $9.22/9.30 an ounce against $9.46 late in New York on Thursday.

Platinum and palladium edged lower but remained rangebound as they consolidated after sharp price falls earlier in the week. Both metals have come under pressure from a spate of bad news from the global auto market.

China posted its third monthly fall in car sales this year in November, official data showed on Friday, setting the stage for a possible double-digit decline in 2009 despite government efforts to pump up consumer confidence.

General Motors said it is eliminating a third production shift at three U.S. plants, leading to almost 2,000 job losses, and will slow production of a range of cars.

Meanwhile BMW said its global sales fell by a quarter in November.

Spot platinum was quoted at $784/804 an ounce, down from $786.50 an ounce late on Thursday. Spot palladium was at $164.50/172.50 an ounce against $166.50.

Jan Harvey, Peter Blackburn
LONDON, Dec 5 (Reuters)

Zinc also rallied until mid-morning, but then eased for the rest of the day, ending at $0.5256/lb., down more than a third of a cent. Aluminum peaked in the pre-dawn hours but sank through the day, just coming off its intraday low at $0.7759/lb., down three-quarters of a cent, while lead followed aluminum closely, winding up with a loss of a third of a cent, at $0.5259/lb.

Copper rebounded from a fresh 3½-year low to post a day of solid gains amid a great deal of short covering.

Still, most analysts continue to view the demand situation for copper as bearish, considering the extremely weak U.S. housing sector, concern about the possibility that U.S. automakers won’t get the government bailout necessary to avert bankruptcy, and surging London stockpiles.

Inventories monitored by the LME rose again yesterday, gaining another 1,500 metric tons, to 283,125 tons. Stocks are up about 20% already in November. On the other hand, Shanghai copper stocks fell 3,797 tons, or 18%, a drawdown somewhat greater than expected, but not enough to offset rising stocks elsewhere, and a growing international surplus.

Concerning aluminum, traders are “pricing in expectations of further stock builds, which we concur with,” wrote Barclays Capital analyst Gayle Berry in London. LME aluminum levels are at their highest since December 1994.

Meanwhile, prices of nickel and zinc have fallen too low to cover costs for perhaps half of the world’s production of the metals, says Eugen Weinberg, an analyst at Frankfurt-based Commerzbank. Production cuts will help stabilize prices of industrial metals for the next three to six months and “as soon as China’s demand picks up, prices will pick up,” Weinberg believes.

In company news, Canadian mining giant Teck Cominco announced it will slash spending, suspend dividends, sell assets, and withdraw from the Petaquilla copper project in Panama in an effort to ease the debt burden generated by its acquisition of Fording Canadian Coal Trust.

But on the optimists’ side, HudBay Minerals has unveiled a plan to buy Lundin Mining Corp, in a friendly deal that “creates a new Canadian leader in mining.” To replace Teck?  We’ll see.

Source:

The base metals were mixed on Friday. Copper bottomed below $1.48 in the pre-dawn hours, but then pushed higher until the late morning, when it came off its highs to finish at $1.5752/lb., up 5½ cents. Nickel rose from the pre-dawn hours to mid-morning, trailed off, but then rallied late to close at $4.5503/lb., up 9¼ cents. Zinc also rallied until mid-morning, but then eased for the rest of the day, ending at $0.5256/lb., down more than a third of a cent. Aluminum peaked in the pre-dawn hours but sank through the day, just coming off its intraday low at $0.7759/lb., down three-quarters of a cent, while lead followed aluminum closely, winding up with a loss of a third of a cent, at $0.5259/lb.

Copper rebounded from a fresh 3½-year low to post a day of solid gains amid a great deal of short covering.

Still, most analysts continue to view the demand situation for copper as bearish, considering the extremely weak U.S. housing sector, concern about the possibility that U.S. automakers won’t get the government bailout necessary to avert bankruptcy, and surging London stockpiles.

Inventories monitored by the LME rose again yesterday, gaining another 1,500 metric tons, to 283,125 tons. Stocks are up about 20% already in November. On the other hand, Shanghai copper stocks fell 3,797 tons, or 18%, a drawdown somewhat greater than expected, but not enough to offset rising stocks elsewhere, and a growing international surplus.

Concerning aluminum, traders are “pricing in expectations of further stock builds, which we concur with,” wrote Barclays Capital analyst Gayle Berry in London. LME aluminum levels are at their highest since December 1994.

Meanwhile, prices of nickel and zinc have fallen too low to cover costs for perhaps half of the world’s production of the metals, says Eugen Weinberg, an analyst at Frankfurt-based Commerzbank. Production cuts will help stabilize prices of industrial metals for the next three to six months and “as soon as China’s demand picks up, prices will pick up,” Weinberg believes.

In company news, Canadian mining giant Teck Cominco announced it will slash spending, suspend dividends, sell assets, and withdraw from the Petaquilla copper project in Panama in an effort to ease the debt burden generated by its acquisition of Fording Canadian Coal Trust.

But on the optimists’ side, HudBay Minerals has unveiled a plan to buy Lundin Mining Corp, in a friendly deal that “creates a new Canadian leader in mining.” To replace Teck?  We’ll see.

Source: Base metals mixed – Zinc and nickel seen selling below cost of production

Nickel fell as low as $4.50 at the New York open, but about-faced and pushed almost to $5 before easing late and closing at $4.8799/lb., up 25½ cents. Zinc also featured a steady upward progression to its intraday high of $0.5318/lb., up almost 2½ cents. Aluminum had a choppy trading day but managed to push to $0.8502/lb., up a penny and a half, while lead had a very strong day, ending at its intraday high of $0.6149/lb., up nearly 5 cents.

Copper led the industrial metals on a rare concerted upswing as the slippage in the dollar made them more attractive and traders took some heart from equities markets that rebounded from dismal lows to post powerful gains on the day.

News out of China got some close scrutiny.

The Chinese reported that copper output dropped 8% on the year in October, to an eight-month low, as manufacturers cut production in response to weakening demand.

“That’s not a surprise,” said Judy Zhu, an analyst at Standard Chartered Bank in Shanghai. “We’ve heard production cuts by smelters lately and I don’t think it’s going to create tight supply in the international market because the smelters are just trying to keep their inventory in check.”

At the same time, October industrial production rose only 8.2% in China, the statistics bureau said. The year-over-year gain was smaller than any economist had forecast in a Bloomberg survey.

“There has been a significant deterioration in momentum” in Chinese production, wrote analysts at Barclays Capital in London, and that “bodes ill for metals consumption.”

Meanwhile, aluminum inventories monitored by the LME rocketed up by 44,425 metric tons yesterday, to more than 1.56 million tons, a better than 15-day global supply, and the highest level on record for the contract.

Source: Base Metals All Push Higher, Getting a boost from Equities Markets

Nickel briefly dropped below $5 during the pre-dawn hours, but pushed higher through most of the day, closing at $5.4817/lb., up nearly 24 cents. Zinc zigged and zagged to little ultimate effect, ending at $0.4876/lb., down less than a half-cent. Aluminum lost ground, shedding more than a penny, to $0.907/lb., while lead was strong, adding almost 2½ cents, to $0.6864/lb.

In a mixed day for the industrial metals, copper finished up its worst month in thirty years, losing 36% in October on concerns about the slowing global economy. No one is giving it much of a chance for a rebound anytime soon, either.

“The outlook for demand doesn’t look good,” said Triland Metals trader Michael Khosrowpour. “China seems to be one of the saviors around but at the same time there are a lot of other economies that are shrinking.”

Donald Selkin, of National Securities Corp. in New York, concurred, saying that, “There are some headwinds in the economy that will continue to pressure copper … It will keep trading around these lower levels.”

Advancing stocks also played their role in copper’s decline. Inventories monitored by the LME shot up 6,775 metric tons yesterday, to 239,650 tons, the highest level since mid-March of 2004.

Unsurprisingly, Citigroup slashed its 2009 copper-price forecast by 45%. Copper will average $2 a pound next year, Citi now says. That’s a steep downward revision from the previous forecast of $3.65/lb.

Meanwhile, LME aluminum stocks also jumped, gaining 1,150 metric tons yesterday, to 1.5 million tons.

Regarding zinc, the Chelyabinsk Zinc Plant, Russia’s largest zinc producer, said yesterday it has abandoned plans to develop a mine near its main production asset and will slash investments after cratering prices led to a first-half loss.

And Brazil’s mining giant, Vale, said yesterday it will cut its iron ore output by 10% percent from November, in response to the deteriorating global economy.

Source: Base metals mixed – Aluminum, copper stocks on the rise

Zinc was strong, ending just off its intraday high at $0.5375/lb., up nearly 5 cents. Aluminum hit 97 cents before beating a sharp retreat back to $0.9479/lb., up three-quarters of a penny, while lead shot up to $0.6728/lb., up 3¼ cents.

Copper led the industrial metals on a tear yesterday, shooting up the most in two years, as traders became consumed with optimism generated by the Federal Reserve.

The metal is up 25% so far during this comeback week.

The price of copper is also likely to be supported by “supply-side vulnerability,” according to analysts at Barclays Capital. Much of its runup of the past several years has to do with mine accidents, labor unrest and lower ore grades, all of which left miners scrambling to meet demand.

But, “Given the worsening sentiment about the global economy, this rally could well be short-lived,” Barclays added. “The demand picture for metals consumption continues to remain weak.”

“We have just had a massive sell-off and prices have gone well into the cost curves for a lot of the commodities, particularly nickel and zinc,” said Jim Lennon, analyst at Macquarie Bank.

Chile, the largest copper producing country, reduced its 2008 copper output forecast for the second time since July, this time to 5.45 million metric tons, mostly due to operational issues. The Chilean Copper Commission also said falling prices may slow the pace of investments in some of the nation’s mining projects after 2009.

China’s central bank chipped in, slashing banks’ benchmark lending and deposit rates by 0.27%, the third cut in six weeks. “There was clear evidence that growth in China was slowing both in data and officials saying that … we’ll see more moves to stimulate growth over the next six months or so – everywhere but specifically in China,” said Robin Bhar, a metals analyst at Calyon in London.

Source: Industrial metals agree, All push higher on Fed move

Zinc plummeted in the late morning and never found its way back, ending at $0.4885/lb., down nearly 2 cents. Aluminum had a very strong day, pushing to an intraday high of $0.9402/lb., up better than 4 cents, while lead raced to $0.6402/lb., up just over 7 cents.

Copper led most of the industrial metals higher yesterday as it followed equities markets up in anticipation of a rate cut by the Fed today.

“We’ve seen some signs of life coming back to the market with equities rebounding and commodities rising today across the board,” says Matt Zeman. “Copper could rally pretty hard for a few days if the equities hold up.”

Zeman added that he “wouldn’t be surprised to see it rally higher or for several days in a row, perhaps even testing that $2.00 level again,” but that’s it. “I’d expect it to roll back over from there.”

With copper down 35% in October, and headed for its worst month since trading began in New York in 1988, there is beginning to be some concern that supply will soon be affected.

“When prices fall below the cost of production, high-cost producers shutter projects” and trim expansion plans, said Catherine Virga, an analyst at CPM Group.

Aluminum got a boost for just that reason, as Aluminum Corp. of China (ACH), the world’s No.3 alumina maker, said it will cut capital spending by 20% in 2009.

And Rio Tinto (RTP) CEO Tom Albanese said his company is rethinking its capital investment projects “across the board” to see if it could cut costs or delay them.

Albanese also brushed off the notion that the stock market pummeling of resource companies might force it into the arms of rival BHP Billiton, whose hostile bid is now worth some $70 billion. Rio’s shares have lost 2/3 since May and are down 35% just in October.

Source: Base metals mostly higher -  Producers begin shuttering projects

Nickel plunged from the pre-dawn hours straight through the morning, only coming off its lows late to close at $9.939/lb., down more than 32 cents. Zinc was up and down all day with a slight upside bias, ending at $0.8818/lb., up three-quarters of a cent. Aluminum also pushed higher, adding a penny and two-thirds, to $1.3166/lb., up a penny and a quarter, while lead inched higher, adding a bit less than a penny, to $0.8769/lb.

It was a surprisingly good day for the industrial metals, modestly up though it may have been, considering that the economic numbers point definitively to recession and the decrease in demand that that will bring with it.

However, the upside for the metals is that the plunging dollar makes them cheaper for holders of other currencies, and that provoked a bit of buying in the markets.

On the supply side, copper inventories monitored by the LME were depleted for a change, dropping by 950 metric tons, to 122,550 tons, on Friday That came after they had risen by about 10% since the start of May.

Copper inventories monitored by the Shanghai Futures Exchange were also down, falling 13% to 38,829 metric tons in the week ended Thursday.

From a technical viewpoint, chartists say that copper holding at the key support level of $3.50 is a good sign, and they expect a test of the next level of resistance, $3.75.

And in the latest of a spate of labor problems, BHP Billiton reported that operations at its smallest copper mine in Chile, Cerro Colorado, had been hit by a truckers’ strike. Its larger mines have been unaffected as yet, Billiton said.

Source: Base Metals Mostly Higher

Nickel soared to near $10.50 in the pre-dawn hours, fell sharply into the New York open, but rallied from there to close at $10.2603/lb., up 8 1/3 cents. Zinc slumped straight through, only coming off its lows at the end to finish at $0.8745/lb., down a penny and a third. Aluminum was flat until New York opened, then pushed higher all day, ending at its intraday high of $1.301/lb., up a penny and a quarter, while lead sagged without much relief, shedding 3 2/3 cents, to $0.8679/lb.

The pattern seems firmly in place at this time, days of no major changes in industrial metals’ prices, but with an overall down bias. Maybe this is what we’re in for until the U.S. economy gives an unequivocal signal as to which way it’s heading.

The negative sentiment was bolstered again yesterday as the Organization for Economic Cooperation and Development reported that it has cut its growth forecast to 1.8% this year and 1.7% in 2009. Those are the weakest numbers since 2002, reflecting the belief that the U.S. housing-led slowdown is spreading around the world.

Concurrently, London-based researcher CRU cut its estimate for this year’s demand growth in China, the world’s largest copper user, to a “high single digit,” compared with the 11% earlier projected. In contrast, China’s copper demand expanded 19% last year.

“Manufacturers of copper products are experiencing tight cashflow because of rising debt servicing costs after higher interest rates,” CRU said, the result of China’s central bank having raised rates to a nine-month high in December to try to curb inflation.

On the supply side, inventories monitored by the LME rose 1,250 metric tons, to 123,500 tons yesterday, after four days of decline. Including New York and Shanghai exchanges, stocks are equal or 3.5 days of global consumption, less than last year’s average of 4.9 days, but well above the 2-day supply they’d fallen to earlier in the year.

The Chilean Copper Commission is still projecting a shortfall of 46,000 tons this year, but predicts a huge surplus of 450,000 tons in 2009. That would be the first such surplus in seven years.

William Adams, of London-based Basemetals.com, summed it all up by saying, “I’m generally bearish now on metals for the rest of the year … The housing-market downturn and credit crunch will move around and affect Asian demand as well.”
Source: Base Metals Continue Weak – Huge Copper Surplus Predicted for 2009

The fast growth of the emerging world made it clear that demand for commodities of every kind was going to soar and a quick look at pretty much any part of this sector – whether precious metals or palm oil – left little doubt that supply wasn’t going to be there to meet it.

So I started being bullish on precious metals, industrial metals and any kind of fossil fuel seven years ago.

Then, three years ago, I started my love affair with soft commodities as I began to understand how people’s eating habits would change as incomes rise and, of course, as global governments decided that biofuels were the silver bullet that would kill off global warming.

Over the same period of time, it seemed obvious that the housing bubble and the consumer boom it was driving couldn’t go on for ever, something that would hit growth in the west hard.

I was far too early with much of this (I started trying to sell my own flat in 2003 – luckily no one bought it until mid-2007).

But still, when the time came, I wasn’t holding any houses, housebuilders, commercial property or retail stocks, either here or in the US. I’ve been very clear on all sorts of other things, too.

Sometimes, I’ve been right (recommending investing in Brazil for example) and sometimes completely wrong (buying uranium just as it tanked). But the point is this: it has been an easy time to have big opinions and I’ve had lots of them.

That’s not the case any more.

Sure, I still wouldn’t touch anything to do with property or western consumption with a bargepole. That bit is easy. And I wouldn’t buy most physical commodities right now, either – as oil starts to pull back from its mini bubble, other things will too.

On the other hand, I remain convinced that the commodities supercycle has many years to run as the Chinese and the Indians keep buying cars and building highways. Not being a trader, I’m not prepared to sell all my long term holdings in big oil and mining shares, either.

Then, there are stock markets themselves. Look at the numbers in isolation and they seem pretty cheap: the FTSE 100 trades on a price/earnings (p/e) ratio of a mere 11.5 times and yields 4.5 per cent.

That’s not bad. Until you think about how bad the economy might get as house prices keep falling, consumers stop spending and unemployment rises. If that means earnings don’t rise, 11.5 times is a high price to pay for equities. And then there’s inflation – now rampant everywhere.

There is an idea that equities are a good thing to hold in inflationary times – because they are a “real” asset they are supposed to hold their value. But it didn’t quite work out like that in the 1970s.

Instead, according to Barclays Capital, between 1969 and 1979 the average annual real return for UK equities was -2.3 per cent.

That’s better than bonds, but not exactly the kind of return that would have you rushing out to put your name on the list for one of Burberry’s £11,000 alligator skin handbags.

Thinking about inflation is confusing too: will prices still be rising next year?

Five years ago, it was easy to place your bets on inflation. Interest rates were low, money supply was rising far too fast around the world, commodity prices were beginning to break out, and it was already clear that the prices of jeans and DVD players imported from China couldn’t actually fall indefinitely.

So the fact that inflation is on the up everywhere shouldn’t come as too much of a surprise.

But if – as I think we can expect – the credit crunch really gathers pace and recession takes hold might we not see the return of deflation instead?

Société Générale’s number one bear Albert Edwards thinks so. He’s expecting the next few years to offer us a sample of Japanese-style deflation accompanied by a brutal bear market. Nasty.

I think I’m more inclined to expect stagflation than deflation, given how entrenched easy money policies are in the US. But, either way, there doesn’t seem to be a good reason to buy much in the way of western equities.

Now the good news. My ongoing confusion about the current state of our markets tells me one simple thing – that I should hang on to my gold.

The price of gold has already fallen 14 per cent since its peak of $1,033 back in March, and it also had a bad week as the dollar rose.

But, in uncertain environments, what we all need most is insurance. And gold is the best financial insurance you can get over the long term.

There is a perfectly reasonable fundamental case to be made for holding gold: supply is limited and demand high. However, the real point is that the future is very uncertain and not in a good way.

We could see an inflationary recession. We could see a deflationary recession. But what I think we can be pretty sure we won’t see, over the next few years, is stable growth with stable prices.

Tim Price of PFG Wealth puts the case nicely. “There are few things you can count on in a full-blown economic and financial crisis,” he says.

“Not central banks, politicians or Wall Street banks, and not paper currencies – the dollar lost 98 per cent of its purchasing power during the 20th century.”

“But several thousand years of world history point to an alternative store of value, in the form of this iconic, shiny yellow metal, whose very scarcity is its abiding strength.”

You can get exposure to said iconic metal by buying the ETFS Physical Gold ETF (PHAU).

Source: Why It Pays to Hang On to Gold