Gold was steady from the far East through the first half of London trading, holding at or near $905, but collapsed when the New York session opened, cratering more than $25 in the first hour before edging higher through the rest of the day and finishing at $883.70/oz., down $17.60 from Friday. Overnight, gold has been trending higher.

Platinum’s decline was neither so steep nor so deep, as it ended at $2035/oz., down $16. Overnight, platinum has been flat.

Silver declined a bit more heading into the New York open, but its fall was equally fast and furious before it, too, rallied a bit into a close at $16.78/oz., down 54 cents. Overnight, silver has been pushing higher.

It was a ghastly day for the precious metals, especially considering that the market-moving forces were not all that strong, with the euro slipping less than a penny against the dollar.

Crude also factored in, with the price on the rise despite word out of the oil summit that the Saudis stand ready to increase production.

Traders are very wary at the moment, according to Julian Phillips of Goldforecaster.com, who summarized the situation thusly:

“The gold price was reacting only to the U.S. $ moves and on the smallest of moves. It ignored what was positive for gold, the Saudi Arabia meeting on oil, which did nothing to lower the oil price. However, it is very nervous on the smallest $ story now. Even the speculators lowered their exposure to precious metal moves last week, so there is an air of expectancy in the market now.”

All the elements are in place for gold’s next leg up, but until traders are fully convinced it’s happening, they are going to be careful, and are likely to wait until the evidence is overwhelming that it’s underway before jumping in with both feet.

Currencies and Economic News

In the currency market, the dollar rose against the euro. Late Monday, the euro was trading at $1.5525 vs. $1.5622 on Friday.

Traders were oblivious to weak domestic data that, as has been the case during recent straw-clutching days, wasn’t as bad as it might have been.

As the Hightower Report commented, “With the Dollar apparently springing to life in the wake of a slightly better than expected but negative Chicago Fed National Activity Index reading, it was clear that the macro economic bar among the world’s leading economies was set very low. In other words, the Dollar only had to avoid a patently discouraging scheduled reading to gain the upper hand on Monday morning.”

Instead, investors’ attention was focused across the pond, where the closely-watched Ifo Institute’s German business-sentiment index fell to 101.3 in June, its lowest level in more than two years.

Additionally, the RBS/Markit composite PMI reading-a purchasing-managers’ index for the manufacturing and service sectors across the 15-nation eurozone-delineated a contraction in activity in June, dropping to 49.5 from a reading of 50.6 in May.

The data highlight the European Central Bank’s dilemma, as it faces surging inflation at the same time that economic activity is less than robust. Doubts have surfaced that the ECB will be able to raise interest rates next month.

“Although over the past two weeks nearly everyone at the ECB from President Trichet on down has echoed the common refrain that inflation remains too high necessitating further tightening, economic reality may temper any immediate plans to raise rates, wrote Boris Schlossberg, of Forex Capital Markets.

Energy

In the energy market Monday, crude for August delivery debuted as the front-month contract by pushing higher, closing at $136.74/barrel, up $1.38. July reformulated gasoline rose 1.6 cents, to $3.4551/gallon.

Traders were unimpressed by the results of the oil summit in Jeddah over the weekend, at which the Saudis said they would raise daily production by 200,000 barrels in July, on top of the increase of 300,000 barrels a day announced in May.

Kevin Kerr, president of Kerr Trading International, summarized sentiment by saying that, “The meeting was little more than a slap in the face as to the U.S. and the rest of the world as 200,000 is next to nothing … The fact remains that we can simply no longer have an oil policy that forces us to go beg for supply.”

The Saudi commitment, said Anthony Sabino, a professor of law at St. John’s University, is “a general indication that OPEC realizes that prices are so high it will stanch the flow of petrodollars into their coffers, not to mention that a worldwide recession will depress demand for their only viable export.”

Why do prices remain elevated? “The market has so convinced itself that the spiral is never ending upwards, it won’t allow itself to level off — at least not yet,” Sabino said.

That doesn’t mean supply problems aren’t real, as the Nigerian situation demonstrates. Militants there have shut down facilities belonging to both Shell and Chevron in recent days, despite declaring a unilateral ceasefire, which goes into effect today.

And, as Goldseek.com warned: “Also troubling is that Saudi Arabia does not produce the light sweet crude needed for gasoline which comes from politically unstable areas like Nigeria. The sour crude produced by Saudi Arabia needs more refining which isn’t necessarily available or quickly solved due to the lengthy process of commissioning new plants. The prospect for more violence or even new wars in various parts of the world as well as the possibility for damaging hurricanes seem to be the most worrisome aspects for the market in the next few months.”

Base Metals

The base metals were all in the red on Monday. Copper followed the precious metals down, falling off a cliff at the New York open, then trading sideways after the first hour and finishing at $3.8443/lb., down 5 1/4 cents from Friday. Nickel was the same, closing at its intraday low of $9.7628/lb., down more than 33 cents. Zinc ditto although it rallied slightly after the selloff to end at $0.8494/lb., down just under a penny. Aluminum wasn’t hit as hard as the others, losing only two-tenths of a cent, to $1.3939/lb., while lead was off a bit less than a cent, to $0.8232/lb.

Copper was slammed down after touching a 5-week high in London trading.

Part of the problem is a perception that Chinese demand may be slowing for real. China’s copper imports have fallen by 22.3% in the first five months of the year, to 611,306 tons, according to customs data released yesterday.

Despite the setback, copper remains within striking distance of its alltime highs, as the weak dollar encourages foreign purchases. “Considering the equity market is in doom mode, this is a noteworthy performance and looks as though new highs may be set before too long in the leading metals,” said analyst William Adams at Basemetals.com.

Meanwhile, aluminum touched a three-month high, and has appreciated 25% since the beginning of the year.

“Aluminium prices have strengthened quite perceptibly, both on concerns about short-term power shortages, and in the long term on the economics of the industry with rising oil prices,” said John Kemp, of RBS Sempra Metals.

“Copper may struggle to make fresh highs, but aluminium is very likely to [reach them]. The near term trigger could be supply problems in China, which will underscore how fragile the power system is there.”

Supply disruptions in India, Brazil, Australia and the United States have also helped support aluminum. “In total we estimate one-million tonnes (2 percent) of production has been lost this year due directly or indirectly to power supply problems,” Citigroup Global Markets analysts wrote.

Precious Metals

Gold was slightly lower until the open of the New York session on Thursday, but went vertical at that point, adding $20 in an hour and peaking at $908 before easing during the rest of the NYMEX and dropping further in the Globex to fall back below $900 and finish at $898.00/oz., up only $4.40. Overnight, gold is trending higher.

Platinum pushed past $2090 in Hong Kong, but that was its high for the day, as it sold off whenever a rally began and ended near its intraday low at $2041/oz., down $42. Overnight, platinum has edged higher.

Silver followed gold’s chart almost exactly, peaking around the same time at $17.72, then declining to close at $17.32/oz., down a penny. Overnight, silver has been pushing higher.

Although they ended up with not much to show for it, it was a pretty good day for the precious metals, considering that the equities markets turned around, the price of crude plummeted, and the dollar edged slightly higher.

Gold battled the headwinds blowing against it because, “In the medium to long term, the combination of strong international safe-haven demand and decreasing production and supply of gold in most major producers, and particularly in South Africa, will likely result in gold going significantly higher in the coming months,” said Mark O’Byrne, of Gold and Silver Investments Ltd.

The production falloff in South Africa is precipitous, O’Byrne said. “South African gold output in April fell more than 10% in volume terms, compared with a year earlier … [Further,] South African production of gold was over 1,000 tonnes per annum in 1970 and has been steadily declining to nearly 250 tonnes per annum today.”

Output “has fallen sharply after state-owned power utility Eskom struggled to provide sufficient power to mines,” O’Byrne said. And, “Eskom have admitted that the power and electricity problems are a major challenge and may take years to rectify, which would likely result in further falls in gold production in South Africa.”

Peter Spina, of GoldSeek.com, believes gold is a tightly coiling spring. With oil “now solidly above $100, gold should easily be above the four-figures mark,” Spina said. “The longer the oil price stays above the $100 level, the more appealing gold will become and the investment buying will support the gold price during this traditionally weak seasonal period.”

Overall, “Pressures are building within the gold and silver complex, this may be another pop higher followed by consolidation, but I expect one of these rallies to gain traction and ignite the next leg higher in the gold price,” Spina wrote. “It could be well underway by summer’s end.”

Currencies and Economic News

In the currency market, the dollar edged higher against the euro. Late Thursday, the euro was trading at $1.5503 vs. $1.5525 on Wednesday.

The buck garnered some support after the Labor Department said applications for first-time jobless benefits dropped to a two-week low of 381,000 for the week ended June 14.

However, that drop was tempered by a two-month high in the four-week average of initial claims. That number, which tends to smooth out one-time anomalies, ticked upwards, to 375,250, last week.

The average is at a new cycle high, noted Ian Shepherdson of High Frequency Economics. “This is recession territory, at least if the experience of 2001 is a guide,” Shepherdson wrote.

In early March 2001 — the first month of the last recession — the eight-week average of claims was just 362,000, lower than it is now, and it rose rapidly thereafter. “The pace of layoffs is now quite high, with no prospect of any reversal or even a leveling-off in the near future,” wrote Shepherdson.

The number of persons continuing to collect unemployment benefits fell back to 3.06 million in the week ended June 7, a drop of 76,000. Although it’s at the lowest level since April, it still far exceeds the year-ago mark of 2.52 million.

Energy

In the energy market Thursday, crude for July delivery plummeted, closing at $131.93/barrel, down $4.75. July reformulated gasoline plunged 11.4 cents, to $3.3526/gallon.

Market participants shrugged off supply threat news from Nigeria. Royal Dutch Shell reported that it had shut in production at its main offshore oil field after an attack by boat by local militants. The Shell platform produces 200,000 barrels a day.

Instead traders focused on a decision by China’s National Development and Reform Commission to raise gasoline, diesel and jet-fuel prices by 17, 18 and 25%, respectively.

“This follows the trend of other Asian countries reducing government fuel subsidies, which should, over time, put a dent in demand,” said analysts at Action Economics.

However, Sean Brodrick, a natural resources analyst for MoneyandMarkets.com, wrote that “oil bears and stock bulls alike are seizing on this news from China like drowning men grasping at lifelines … [but] I hope they can live with disappointment.”

Upping China’s gasoline and diesel prices by 46 cents a gallon, is “probably not enough to have much impact on existing demand,” Brodrick said.

Base Metals

The base metals were mixed on Thursday. Copper sank during the pre-dawn hours but took off during the first hour of New York trading, before easing later in the day and finishing at $3.8466/lb., up 2 1/4 cents. Nickel prolonged Wednesday’s slide, briefly falling below $10 before recovering to close at $10.0259/lb., down 39 2/3 cents. Zinc was off during the pre-dawn hours and never recovered much, ending at $0.8586/lb., down 2 1/4 cents. Aluminum was down for most of the day, but edged back to wind up essentially unchanged at $1.3794/lb., while lead sagged through the whole day, eventually shedding 3 1/4 cents, to $0.8051/lb.

Copper held up, on a mostly down day for the industrial metals, due to the labor unrest in Peru. A strike at Southern Copper’s Cuajone mine in Moquegua province has severely curtailed output, while the company’s Ilo smelter will have to close soon if supplies can’t get through roadblocks in the area. Strikes and protests have also broken out at other mines in Peru.

In addition, Norddeutsche Affinerie, Europe’s largest copper producer, said that China may have recently responded to high prices by selling part of its strategic copper stocks. That would account for diminished Chinese import demand for the metal in recent months.

Meanwhile, nickel oversupply grew in April to the widest in eight months as demand receded for the third month in a row, according to the International Nickel Study Group.

Supply exceeded demand by 13,700 metric tons in April, the INSG report said. Production increased 6.1%, year over year, while consumption was 112,800 tons, off 0.9% from March.

Zinc struggled as stockpiles of the metal jumped to a 21-month high. Inventories monitored by the LME rose 5.8% yesterday, to 152,175 tons, the highest level since September 20, 2006.

Zinc production outpaced demand by 64,000 tons in the first four months of this year, the World Bureau of Metal Statistics said.

Lower zinc prices have led to production cutbacks at smelters in China, according to researcher CBI China Co. The average operating capacity of the country’s 28 largest zinc smelters dropped from 83 to 78% in May year over year, CBI China said.

UK based MEPS said that the relentless upward movement in EU prices continues and customers are obliged to accept the new higher third quarter values demanded by local producers. MEPS added that “Prices of imported strip into Europe are still increasing this month, although less material is entering the region. There is relatively little steel from China due to the pending anti dumping investigations. Output from domestic mills for July September deliveries appears to be restricted.”

MEPS said that “Demand from end users in Germany has slowed slightly because they are not sure they can pass on their increased costs to their customers in a weakening economic climate. Although service centers are making good profits at present, they are keeping stocks down. Third country imports are available, albeit not always at attractive prices. Buyers are not keen to place orders for deliveries so far ahead when they feel current prices are probably at their peak for this cycle.”

MEPS said that “In the French market, inventories are quite low and not expected to recover in the near term because of a lack of overseas availability and restricted supply from domestic sources. Prices continue to increase for third quarter deliveries. Sales are only average, although demand from the auto sector has improved.”

MEPS added that “Strip mill prices have registered further sizeable rises in Italy this month and the trend is expected to continue to the end of the summer as import volumes drop away. As hot rolled coil prices escalate, they are pushing the rest of the flat products with them. Stocks are depleted at present because customers are reluctant to risk losing money if the price trend goes into reverse.”

MEPS said that “Corus has stated that it will lift basis prices for quarterly contracts in mainland Europe by EUR 130 per tonne from July 1st 2008 but so far, no official announcements have been issued concerning the local market. Sales at home are lackluster. However, customers have fewer options on supply because of a lack of third country imports and much smaller quantities than usual on offer from other EU suppliers. There has been no speculative purchasing ahead of the period three price advances. Negotiations are underway and it is clear that prices will rise markedly. Our tabled figures are the results of early deals and values could go higher as more business is concluded.”

MEPS added that “Steel consumption is still quite good in Belgium, although the domestic appliance sector is starting to show signs of weakness. Market players are concerned that the second half of the year could prove to be more difficult as prices may have almost reached a level that the market can no longer support. Stocks at the service centers are on the low side of normal due to tight credit, delayed deliveries and mill restrictions on supply. Distributors are able to pass the higher mill prices to their customers. End users are keeping inventories to a minimum. Third country material is absent and the European mills are reported to be selling large tonnages overseas.

MEPS also said that “In Spain, general demand is stable. However, the auto sector is still reducing order volumes and construction activity is particularly weak as ongoing projects are completed and new ones postponed or cancelled. Availability from European mills is constrained, with smaller clients suffering the most.”

It is reported that Mr Tom Albanese CEO of Rio Tinto Ltd sees value in the freight premium charged on iron ore contracts.

Mr Albanese said that “The freight differential, which is something I have talked about since July last year, was of sufficient importance and value for Rio Tinto and its shareholders, that it is worth negotiating for, and that’s exactly what we are doing.

Mr Albanese said that “Negotiations on this year’s benchmark are continuing. We feel it very important for the benchmark system to evolve to take into consideration the principles of value that includes freight differentials.”

Mr Albanese said there was a value associated with Australian iron ore being closer to the Asian market than Brazilian iron ore. He said that “Australian ores are closer to the Asian market than Brazilian ores and we think there is a value associated with that and that has been part of our discussions.”

Mr Albanese said that “Now, we are getting late in the game on these negotiations and we need to move them forward with some urgency.”