Kitco Market Nuggets

Market Nuggets: RBC's Gero: Peruvian Election Long-Term Supportive Factor For Metals

06 June 2011, 12:18 p.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Ollanta Humala has claimed victory in Peru’s presidential election, and this should be a longer-term supportive factor for metals such as gold, silver and copper, says George Gero, vice president with RBC Capital Markets Global Futures. Peruvian mining stocks fell on worries Humala will impose more government controls on natural resources and hike mining royalties. Historically, state control of resources has tended to curb production, which means less supply, Gero says. “Production is likely to suffer in the long run,” Gero says. Peru is an important producer of gold, silver and copper; a GFMS report this spring listed it as the world’s second-largest silver producer after being overtaken by Mexico last year.  

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: TD Securities: Economic Slowing a 'Risk' But Expects Pick-Up In Second Half

06 June 2011, 11:14 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Commodities may drift lower in the near term on worries about the economy, but the markets are likely to rise later in the year, says TD Securities. Many commodities have been hurt lately by softer Chinese and U.S. economic data and worries about Greece’s debt. “Given the negative sentiment present in the marketplace and no pending economic data capable of convincing traders that this current global economic growth soft patch is temporary, commodities may still drift lower over the short run,” TDS says. However, TDS suggests that market expectations for the global economy may be “too negative,” resulting in an overcorrection by commodities. “As far as TDS is concerned, a sharp and sustained deterioration in the global economic environment and the commodity market over the next several quarters is a risk, but not the base case. We expect growth and commodity markets to rebound into the summer, as manufacturing, corporate and consumer activity accelerate in H2-2011.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Barclays: Auto Demand For Metals May Slow But To Remain 'Solid'

06 June 2011, 10:19 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- The rate of growth in global motor-vehicle production and sales may slow from last year but should still offer “solid” support for base and platinum group metals used in cars, says Barclays Capital. A Japanese earthquake led to output disruptions that negatively affected metals demand, but this bearish impact should give way to a more bullish scenario by year-end, Barclays says. Meanwhile, the bank says it looks for transportation demand for metals in China to slow but nevertheless still grow.”The outlook for global growth in metals demand from the sector in 2011 is generally positive, in our view,” Barclays says. “The pace of growth in vehicle production will slow from last year’s record pace, which was boosted by a ream of incentive deals across the world’s largest markets, but is forecast to remain above the long-term average. As such, light vehicles will provide the base and platinum group metals markets with a solid source of demand growth.” Barclays estimates that that growth of 5% in global light vehicle output forecast by JD Power this year will require an additional 700,000 metric tons of primary aluminum and 114,000 of copper. The bank estimates an increase in platinum auto-catalyst demand by more than 400,000 ounces over 300,000 ounces in palladium in 2011.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: MF Global: Base-Metals Gains On Dollar Weakness Alone To Be Limited

06 June 2011, 09:37 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- MF Global notes that base metals bounced from weakness after Friday’s U.S. jobs report, apparently helped with a number of other commodities by a softer U.S. dollar that resulted. Nevertheless, MF Global questions how long a weak dollar alone can hold up base metals and certain other commodities. “While dollar-induced buying could lift commodities over the short term, it seems to us that such an advance will not be easy to sustain given the backdrop of weaker growth,” MF Global says. “At some point, markets will have to downplay the impact of the currency and focus on the fact that slowing growth will reduce metal demand and put upward pressure on inventories.” MF Global says it does not expect any global slowdown to last “for months on end,” but says “it very well could persist through the summer.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Barclays: Chinese Issues Have Short-Term Implications For Lead

06 June 2011, 09:34 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Analysts with Barclays Capital say Chinese issues pose some short-term risks to lead demand, although they also caution against exaggerating these when looking out to the second half of the year. The Chinese government has been conducting environmental inspections of battery plants and some have been closed down. However, Barclays cautions, the risk to demand beyond the short term is limited since crucial larger facilities are generally technologically sound and can ramp up production to replace output lost when smaller plants are closed. Another concern for lead is transportation demand. Motorcycle sales are down from a year ago and the government is urging local authorities to enforce 2009 e-bike standardization measures, which would limit bike weight and lead input. However, Barclays suggests the slowing in sales is in part due to factors such as the end of fiscal incentives and tighter credit. Barclays looks for more accommodative policy later in the year and also says the e-bike regulations are not legally binding, thus may not be rigorously applied amid any economic troubles. “In summary then, while China certainly poses some potential downside risks to lead during the summer period, the encroachment further into H2 should not be exaggerated,” Barclays concludes.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Gartman Re-Establishes Long Gold Positions

06 June 2011, 08:59 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Newsletter writer Dennis Gartman says he is re-establishing his long gold position. He closed half of his position early Friday on fears of a further correction, “and in retrospect we were right to have done so for the risks were large.” However, Friday’s weak U.S. jobs report left the Federal Reserve no choice but to aggressively maintain easy monetary policy, prompting Gartman to “get back that which we sold.” Even when he exited some of his position Friday, Gartman says, he was not bearish but simply less bullish for the time being. He continues to favor gold in non-dollar terms and notes, as of when he wrote his Monday's daily The Gartman Letter, gold was below where he sold it Friday in euro terms and only marginally above where he had sold it in sterling terms. “Little damage, if any, has been done, and the trends are still firmly in our favor. We return then to what we had had previously, likely to less fanfare than when we exited.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Commerzbank: Dollar, Chilean Mine Strike Supportive For Copper

06 June 2011, 08:35 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- The start of the week was friendly to LME base metals, with general support coming from recent movement in the currency market and copper drawing extra support from a strike in Chile, says Commerzbank. “Price-supporting effects should come from the U.S. dollar, which lost significant ground on Friday on weak U.S. economic data,” the bank says. It notes zinc topped $2,300 a ton and touched its highest level for over a month, while copper has been around $9,200 a ton.” Copper is further benefitting from news that 11,000 contract workers have gone on strike at the El Teniente mine, the fourth-largest copper mine in Chile. “The strike already began the week before last week, but has now strengthened and even escalated to incidents of violence,” Commerzbank says. The mine has an annual production capacity of some 400,000 metric tons and accounts for around 3% of global mining production. Reports say the mine is operating at only 40% of normal capacity, which Commerzbank says is leading to concern that supplies on the global market could be restricted.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: MF Global Looks For Precious Metals To Maintain Short-Term Uptrend

06 June 2011, 08:21 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- MF Global looks for precious metals to maintain their short-term upward trend this week, with Comex August gold perhaps moving above resistance at $1,551.60. “Metals will be supported by the prospect that easy monetary policy remains in place, strong fundamentals, and from technical factors,” says a report from analyst Tom Pawlicki. “Some focus could shift to the possibility that recently weak May data shows a rebound in the June period when that data is released beginning in 2-3 weeks. Focus will also shift toward the potential that Chinese commodity demand remains strong when import data is reported on Friday. The downside will focus on the fact that investment hasn’t really returned en masse to the metals markets yet and from the potential that the Chinese hike rates sometime this month. We favor maintaining a positive bias in gold and holding our long recommendation in platinum.” MF Global maintains a long July platinum position entered March 28 at $1,740 with a target of $2,000 and taking a risk to $1,700.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: R.J. O'Brien: Dollar Underpins Base Metals; Gold Remains Safe Haven

06 June 2011, 08:17 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- A weaker U.S. dollar helped underpin most LME base metals overnight, while gold has attempted a retest of $1,550 an ounce, says Janet Mirasola, managing director of R.J. O’Brien & Associates. She notes most global stock bourses have been weaker after disappointing U.S. non-farm payrolls on Friday and news that Greece may need a new aid package. “The weak U.S. dollar has supported the base metals basket once again and the Red One (copper) has briefly looked at $9,200 ($4.17 lb),” she says. She adds: “Safe-haven traders can still look towards the Shiny One (gold) for some refuge as it holds onto last week’s gains and looks set to re-test $1,550 and possibly even all-time highs above $1,577.” At 7:44 a.m. EDT, Comex August gold was up $2.40 to $1,544.80 and earlier peaked at $1,549.50. She cautions that global markets in general may become defensive and attract liquidation on fears about bad economic news. “Focus will shift back to the U.S. later this morning, where the debate of a possible QE3 will be widely discussed and the employment data from Friday will be over-analyzed.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Morgan Stanley Looks For Chinese Buying On Dip In Base Metals

06 June 2011, 08:10 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Recent weakness in base metals may encourage Chinese imports, says Morgan Stanley. Prices were pressured last week by deterioration in market sentiment over the global macroeconomic outlook. “Despite such uncertainty, we believe this fresh dip, particularly in copper, will reignite physical buying in China and propel imports in June/July,” Morgan Stanley says. “We also note aluminum continues to perform well in spite of the current environment as metal for prompt delivery remains in short supply because of bottlenecks in U.S. LME warehouses and ongoing financing deals.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Morgan Stanley Favors Gold Among Precious Metals

06 June 2011, 08:05 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Precious metals prices remain supported by disappointing U.S. macroeconomic data, the weaker dollar and the probability of a second major Greek bailout, says Morgan Stanley. “We believe the prevalence of global macroeconomic uncertainty will push the complex to test recent highs and prefer gold exposure to silver and the PGMs (platinum group metals), as we believe investors are increasingly weighting precious metals baskets toward gold.”

By Allen Sykora of Kitco News; asykora@kitco.com