Traders are awaiting fresh direction from the foreign exchange markets after a meeting of G8 leaders later this week.

Spot gold was bid at $922.65 an ounce at 1544 GMT, against $924.00 an ounce late in New York on Monday, having earlier touched a high of $931.55.

U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange eased $1.20 to $923.10 an ounce.

With physical demand sluggish despite a price dip, the gold market is largely being driven by currency moves, traders said.

The precious metal edged lower on Tuesday as the dollar  recovered earlier losses against a basket of currencies. The euro, which was earlier lifted by better-than-expected German factory orders, retreated to turn lower.

“The pick-up in the dollar has put some pressure on gold values today,” said David Wilson, metals analyst at Societe Generale. “All commodities are a little weaker, with oil off as well (and) base metals prices still slipping too.”

“Investment demand for gold has stalled, and that has been the key support for gold for much of the first half,” he added.

A stronger dollar reduces interest in gold as a currency hedge, and makes the metal more expensive for holders of other currencies.

The market is looking for any comments on the dollar’s role as the global reserve currency at the Group of Eight leaders’ meeting starting on Wednesday, which could impact on the foreign exchange markets and consequently on gold.

“We have the G8 this week where there is potential for some discussion about the reserve currency… which could have an impact on the currency markets and indirectly on the (gold) price,” said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

WEAKER

Technically, the picture is looking weaker, with gold’s trade down through the 100-day moving average opening up the potential for a move down to $915, Weeks added.

Investment demand remained relatively soft, with holdings of the largest gold-backed exchange-traded fund, the SPDR Gold Trust , falling 0.36 tonnes on Monday.

Switzerland’s Zurich Cantonal Bank, however, reported modest inflows into its gold and silver ETFs last week.

Physical demand for bullion bars has improved slightly in the last week or so, dealers say, but is far from its peak.

Among other precious metals, silver was at $13.13 an ounce against $13.24. Platinum was at $1,131.50 an ounce against $1,143, while palladium stood at $238.50 against $239.

Both platinum group metals have suffered from the downturn in the car industry, their main consumer. Any sign of a recovery in the sector could trigger a turnaround, analysts said.

LONDON, July 7 (Reuters)

This from The Rude Awakening:

The panic in this market is incredible. It’s leading to some absurd valuations. Particularly among the smaller-cap stocks. These stocks have really been hit hard because they have less liquidity than large cap stocks.

When waves of selling sweep through the stock market, they might rock a large cap stock from stem to stern. But the same waves will capsize a small cap stock. So the conditions in the financial markets are very scary right now for any investor who’s holding small-cap resource stocks. But unless we slip into some global depression, these stocks will come back – and come back with a vengeance.

I, for one, can’t wait until earnings season, when we’ll get fresh numbers and updates on the companies I’ve been recommending to the subscribers of my investment service, Mayer’s Special Situations. I’m betting that the earnings power of many of these companies has not changed all that much in the last 90 days – at least not as much as their tumbling stock prices would have you believe.

So I’d like to highlight some stocks that look like particularly deep values right now.

NGAS Resources (NASDAQ:NGAS). Recent price: $1.47. I like the long-term outlook for natural gas. As T. Boone Pickens, the 80-year-old billionaire investor, says, “Natural gas is the fuel of the future.” It is clean-burning, and we have a lot of it in America. The estimates for U.S. shale plays are up around 840 trillion cubic feet of gas – the equivalent of more than 140 billion barrels of oil – or more than half the stated reserves of Saudi Arabia. Energy independence? Seems to me you have to look at natural gas.

NGAS has plenty of acreage. It also owns 636 miles of pipelines. It owns the critical infrastructure to bring its gas to market. The proved reserves alone – some 102 billion cubic feet of gas – ought to fetch $10 per share for a potential purchaser. The pipelines, at only 10 times pretax earnings, come in at about $65 million – or $2.50 per share. So infrastructure assets – which are becoming increasingly expensive to build – easily cover your entire investment in NGAS, since the shares trade for about $1.48 as I write. And I haven’t even put any value on the undeveloped acreage. The net asset value (NAV) per share on NGAS is somewhere north of $12 per share.

NGAS has some debt, which we have to watch. It has $95 million in debt, but it is not due until 2010 and 2011. If natural gas prices stay low for a long stretch of time, this debt could cause some problems. The value of the assets in NGAS, though, offers a lot of protection.

OM Group (NYSE:OMG). Recent price: $18.63. This is another one that baffles. OM Group had a great quarter ending June 30, and the shares surged 18% the day it announced earnings and nearly got to $40 in the ensuing rally. We got our shares for $30. Today, they are about $19. Amazing.

OM Group makes all kinds of chemicals, powders and materials, mostly from three metals: cobalt, nickel and copper. You can find the original recommendation in letter No. 25. That thesis is still intact, and I won’t rehash the whole thing here. Except I will point out that the company now trades for 3.5 times earnings. Predicting where these earnings will go from here is almost impossible. But I’m comfortable with the cobalt story and the metal’s growing use in batteries and aerospace. And at these prices, you can be wrong on earnings and still come out looking good.

Cobalt prices have tumbled to $13 per pound, compared to about $35 one year ago. As a result, earnings estimates are all over the map – ranging from $1.90 a share on the low side to $5.00 on the high side. For perspective, OMG earned $5.00 in 2007, when the cobalt price averaged $29 a pound. So maybe 2009 is a bad year. But the cobalt price will rebound eventually, and when it does, OMG will rebound as well. I should also point out that OMG has no net debt and plenty of excess cash, yet trades for less than half of stated book value.

The market is factoring in a very gloomy outlook for OMG, even though the most recent quarter gave us nothing but positive news (remember that 18% single-day gain). The market seems to have forgotten that and thrown out OM Group’s shares with all other commodity names.

Canadian Superior Energy (AMEX:SMX). Recent Price: $1.01 I was in Manhattan recently for the Value Investing Congress. The West Coast Asset Management team was there. They made a presentation on a few ideas they like. Someone asked them about Canadian Superior, which was their favorite idea about six months ago. They still like it and said that since their presentation, Canadian “has done nothing but knock the cover off the ball.”

I agree. Since we’ve owned it, Canadian has delivered good news on the exploration front and overall good results. These bits of news have, at times, sent the shares up as much as 20% in a single day. But those gains soon melted under the barrage of broader bad economic news and the market’s overwhelming sell-off.

As long as natural gas prices remain in the can, it seems as if market sentiment won’t turn much on the natural gas names. The market has just stomped on all of them and pushed share prices to really cheap levels. I think Canadian is a steal and gives you legitimate 10 times potential from its current price of only $1.00 per share. We picked up shares in June, and you can find the full write-up in letter No. 24.

Altius Minerals (TSX:ALS). Recent price: C$4.10. Altius owns a portfolio of royalties and prospects in Newfoundland and Labrador. This stock has tumbled to the sort of valuation extreme that I have rarely seen during my carreer. In fact, it is so statistically cheap that it is the kind of stock I have only read about in the dusty financial history books on the Great Depression. It’s something Ben Graham might’ve stumbled on in 1934.

The stock sells for less than its net cash!

The stock market currently values Altius at C$127 million. But as recently as June 30, the company had $187 million in cash. And that’s not its only asset. Nor is the company losing money. It’s actually adding to that cash pile. No surprise that insiders are buying. Plus, the company announced it would buy back 10% of the stock. So at the current price, in theory, you can buy the company for $127 million, drain the company treasury to get your purchase price back and still have $46 million left in cash, plus all the assets for free.

Altius, like all the stocks I have I highlighted here, look really, really cheap, with big upside.

I believe that’s really all we can do as investors. We can’t say what other people will pay for the stock or when they might pay more than they do today. We can only find these anomalies and wait for the market to correct the gaps, as it does over time.

I know that for the last couple of months, the stock market has been a very treacherous place for investment capital. On the other hand, cheap is cheap. And some of the stocks I’ve mentioned above are “Depression-style” cheap. I am not trading in and out of the market, trying to pick tops and bottoms. I believe such an effort is futile. Instead, I look for deep values and collect good bets.

Over time, we’ll get paid. But in crazy markets like this, we have to realize it might take a little while. We’ll have to be patient and build low-cost positions in these stocks. These are the times when you plant the seeds of monster future returns.

All bear market cycles turn eventually – as even this one will.

Source: Shooting Stocks in a Barrel, Part II

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

Copper ended the week on a down note, wrapping up the biggest weekly loss in a month as the strengthening dollar made the metal less attractive to investors holding foreign currencies.

“A firmer dollar appears to be playing a role in base (metals), and with relatively elevated base metals prices, thin trade and no sign of any urgent consumer demand, only renewed US dollar weakness or further production disruptions will keep metal prices supported,” said UBS analyst John Reade.

The reallocation of capital is also playing a clear role, as traders place bets that equities have made their bottom.

“Equity markets are trading in the black this morning as investors increasingly gravitate towards the view that the worst of the financial markets difficulties are behind the main players,” said JP Morgan analyst Michael Jansen.

“A view that the credit market crisis is fading would be broadly U.S. dollar-supportive and help to chip away at the gains made in commodity prices,” Jansen added.

Nevertheless, fundamentals watchers see the bull market running on. “We expect 2008 to be another year of sluggish supply growth,” Barclays Capital analysts wrote yesterday.

And there will inevitably be disruptions such as are now occurring in Chile. State-owned Codelco, the world’s largest producer, has already closed two mines because of strike-related violence, and more closings may follow, the company says.

If “we see a clear risk to people’s lives and safety, we are going to have to halt operations, not just at the request of union leaders but as a management decision,” said Codelco vice-president Daniel Barria.

Silver breached the $18 mark in Hong Kong, but declined in London, then traded very narrowly through the New York day, closing at $17.83, up 12 cents. Overnight, silver is trending higher.
(Click here for charts)

Another day of little movement in the metals prices, albeit to the positive side this time, at least for gold and silver.

Consolidation is the name of the game in the absence of any impetus for gold to make a stronger up or down move. Yesterday, the metal shrugged off modest strength in the dollar and took its cue from record-setting oil prices.

With crude “surging to a near record price today, gold’s role as a hedge against inflation will likely see it supported at $900 and again challenge resistance at $950 in the coming days,” said Mark O’Byrne, of Gold and Silver Investments Limited.

James Moore, of TheBullionDesk.com agreed, writing that, “Given the ongoing recessionary/inflationary fears and liquidity issues dogging the credit market, we remain bullish in the mid to longer-term and expect gold to reclaim $1,000 an ounce later in the year.”

Injecting a note of caution were analysts who speculate that gold’s rally may stall as investors opt for other commodities as hedges against inflation. Oil and corn prices, for example, have risen more than gold in the past year.

“The speculation that you had a month ago in gold has gone on to other things like agricultural commodities,” said Marty McNeill, of R.F. Lafferty in New York. “Gold will catch up, but it’s going to take some time.”

One measure of the metal’s stability, though, can be found in bullion holdings of StreetTracks Gold Trust, which have remained steady for the past two weeks.