Money and Metals

MarketWatch has the days trading numbers. "Gold futures closed lower Wednesday, failing to hold earlier gains despite weakness in the U.S. dollar, to tally a seven-session loss of more than $82 an ounce. At the same time, however, silver and copper prices gained, helping key metals-mining indexes post their first session climb since June 2."

"Gold traders are 'awaiting a confirmation that gold is able to part ways with commodities and reassert its role as a liquid, capital-preserving, trans-national currency,' said Jon Nadler, at bullion dealers Kitco.com. 'Until such a de-coupling takes place, or until gold stops being so dangerously close to its 200-day moving average the prudent buyers may stand aside, leaving the floor open to seasoned pros who live for their daily adrenaline rush,' he said."

"Gold for August delivery fell 30 cents to close at $566.50 an ounce on the New York Mercantile Exchange, reversing course late in the session to retreat from an intraday high of $575.50. In electronic trading Wednesday evening, the contract traded as low as $557.10. Gold's slight decline Wednesday came even though the dollar fell against the euro and yen."

"The May consumer-inflation data was viewed as key for the Federal Reserve as it decides whether to lift interest rates at its June 28-29 meeting. The consumer-price index increased 0.4% in May, led by higher energy and shelter costs, the Labor Department said Wednesday. Federal Reserve member Richard Fisher said Wednesday that inflation expectations have risen to unacceptable levels, fueling gold's late session fall, according to John Person, president of National Futures Advisory Service."

"The comments were was 'sent over the newswires as gold was closing, sending metals and stock markets lower as they now fear the Fed will raise rates for the 17th time by another [quarter-percentage point] to 5.25% on June 29th,' he said."

"Elsewhere in the metals sector Wednesday, July silver futures closed up 11 cents, or 1.1%, at $9.735 an ounce after dropping 13% in the previous session. July platinum rose $20.40 to end at $1,138.90 an ounce and Sept. palladium finished up $15.95 at $292.65 an ounce after closing Tuesday at its lowest level since January."

The Financial Times. "The sharp slide in metal prices from their record highs last month may not be over, if mining equities are any guide. On the other hand, mining shares may be undervalued relative to underlying metal prices."

"Take gold for instance. Bullion has fallen 22 per cent from its 25-year high of $730 a troy ounce reached a little more than a month ago, but it is still about $60 or 12 per cent above its level at the start of the year. By contrast, the FT Gold Mines index is now back to its level at the start of the year, which suggests that either the gold price has further to fall, as equities have traditionally moved ahead of the physical price, or the recent sell-off in mining shares is overdone."

"The gold price rally saw the metal rise about 190 per cent from its trough of $253 in February 2001, whereas the FT Gold Mines index, which is based on the share prices of 19 of the world’s biggest gold mining groups, rose almost fourfold over the same period. The index has fallen more than 28 per cent from its peak on May 10."

"Analysts say that the outperformance of gold shares reflects the leverage that gold equities have compared with the physical market, simply because most of their costs are fixed so they benefit handsomely when prices rise."

"Stephen Walker, managing director global mining research at RBC Capital Markets, said he expected gold equities to rise, rather than gold prices to fall further."

"Wednesday’s price moves backed his theory. The physical gold price was $3 higher at $565 a troy ounce on Wednesday, having dropped more than 6 per cent in the previous session, whereas large gold miners performed better. Newmont Mining climbed more than 3.5 per cent to $49.42 and AngloGold Ashanti more than 6 per cent in Johannesburg."

"Wiktor Bielski, managing director mining at Morgan Stanley in London, said the relationship between metal prices and mining shares broke down during the metal price boom. 'Traditionally mining shares led metal prices by six to nine months. That is no longer the case and we have also seen the physical metals outperform the shares, which could mean that metal prices have further to fall,' he said."