Gold $1,509/oz - Gold prices bounce as markets recover from Thursday's shakeout in oil other commodities

• Hedge funds Clive Capital and Astenbeck loose gains in market shakeout last week (FT)
• US non- Farm payroll numbers boosted markets on Friday
• China trade data tomorrow, inflation and retail sales figures due Wednesday.
• German Q1 GDP figures due Friday

Gold - Latin American central banks loose confidence in US dollars and buy gold

• Mexico bought around 100 tonnes of gold this year according to the Mexican Central Bank surprising the market indicating the bank's lost confidence in the US dollar.

• Bolivia reported that it bought 7 tonnes of gold last week.
• Russia and Thailand were also seen buying gold
• Most central banks buy in gold from local producers and refiners denying this gold from the market place.
• This disrupts normal trading flows and causes prices to rise as gold buyers must compete for more limited supplies of metal.

Silver US$36.61/oz - iShares Silver Trust (SLVP) the large silver ETF suffered >$1bn outflow last week.

• Easy access to trading in the iShares Silver ETF enabled small scale traders and investors to liquidate positions quickly on Friday when profit taking and probably some panic selling hit the market.
• The move followed new margin requirements imposed by the COMEX exchange earlier in the week. The effect of this was to raise the cost of running positions in silver and to cause some deleveraging of positions in the market.
• High frequency trading invariably accelerated the market collapse
• Silver prices now appear to have stabilised in a market where ETF inflows are said by some not to be the major driver for demand.
• We think ETF activity is a major influence on prices although ETF inflows represent a fraction of total demand.
• Silver ETF's currently hold some 580m ounces in the market at present.
• Mine output this year should be some 790m ounces worth some $29 billion at current price levels, however most investment in silver has gone in at significantly lower levels and it is no surprise that investors should look to take profits in this market.

ECONOMIC NEWS

Dow Jones Industrials +0.43% at 12,638.74

Nikkei 225 -0.66% at 9,794.38

HK Hang Seng +0.77% at 23,336.33

China - According to Zero IPO Research, mainland Chinese firms accounted for 58% of the global IPO market by size in Q1. The machinery manufacturing industry saw the most IPOs with 18 Chinese companies raising US$2.9bn, followed by the chemical raw material and processing industry that has 13 IPOs raising US$2.38bn. 6 companies in new energy sector were listed making a combined US$2.01bn in Q1.

• US Treasury Secretary, Geithner will meet with Chinese leaders this week and is expected to continue to call for higher interest rates as the US continues to push for a stronger yuan. Currently the Chinese argue that the US budget deficits are leading to distort the flow of trade and investment.
• The Securities Times is reporting that China will "appropriately" increase the resource tax imposed throughout the nation as part of the next 5 yr plan. The change will likely be to a price based levy rather than one dictated by volume.

US - The market was given a reprieve Friday afternoon as the Non farm payrolls came in better than expected. Payrolls increased by 244k, significantly higher than the 185k increase initially forecast. The positive sentiment this created was marginally offset by the fact that the Unemployment rate increased to 9% from 8.8%. Nevertheless the markets showed the same bullish, maybe blinkered approach that we have come to recognise this year, ignoring the negative and reverting from the downward spiral that encapsulated last week.

Europe - European officials have announced plans to revamp the bailout provided for Greece last year, as the general perception increases that Athens will be unable to raise the money required to service the debt. The yield on Greek 10yr bonds has almost doubled since the bailout last year. Rumours have been circulating over the weekend that officials have been considering a return to the Drachma.

UK - A domestic report by Rightmove that measures sentiment by first time buyers in the UK, suggests that the mood is changing with more buyers becoming optimistic about the outlook that prices are on the up. 33% of people surveyed said that prices will be higher in a year, compared with 22% back in January.

• Additionally an employment confidence index compiled by Lloyds registered an improvement last month.

South Africa - Gross gold and Forex reserves rose by 2.7% to 50.6bn in April from March according. Net reserves increased by US$46bn according to the Reserve Bank.

Mexico - In contrast to other Latin American nations, slowing inflation is allowing the government and companies to sell a record amount of Peso bonds according to Bloomberg. Mexico has not raised rates since July 2009 as inflation has remained steady at 3.2%. The economy is forecast to grow at around 4.3% in 2011, after having expanded 5.5% last year.

Australia - A confidence index compiled by the National Australia Bank showed that business confidence declined last month for the second time. The index fell to 7 from 9 in March. The rise of the aussie dollar is widely cited as causing the drop in confidence.

Global Economy - BHP Billiton Chairperson Jac Nasser has announced that the company views the global economy in a fragile state and that in the medium term further downsides are expected as a result of fiscal tightening and economic restructuring.

Currency- The euro is up this morning as sentiment increases that the restructuring of Greek debt will not stop the ECB from raising interest rates to combat inflation despite the fears that it will increase pressure on peripheral nations. The Aussie dollar is up this morning ahead of the Chinese trade report tomorrow that is expected to show imports increased last month, suggesting demand is being sustained despite the monetary tightening underway. The dollar is off slightly against its most traded counterparts today.

US$1.443/eur vs $1.451eur yesterday. Yen80.67/$ vs 80.44/$, SAr6.664$ vs 6.757/$ $1.638/GBP vs 1.635/GBP

COMMODITY NEWS

Precious metals:

Gold US$1,509/oz vs US$1,486/oz on yesterday - Prices are up this morning as the dollar weakens and investors buy back in on the back of the significant fall in prices last week. Concerns over the situation in Greece are also prompting investors to reassess their current views on the Eurozone boosting demand for safe haven assets.

• Local gold sales appear to be rising in India. According to the Bombay Bullion Association on the festival day of Akshaya Tritiya sales were about 15-20t compared to about 10-15t last year. Inflationary concerns have been encouraging local buyers since the turn of the year.

• SPDR gold trust holdings fall further to 1,205.39t (38.754moz) from 1,208.42t (38.851moz) current value US$57,583bn

Platinum US$1,794/oz vs US$1,782/oz yesterday -

• Lonmin the 3^rd largest producer of Platinum have announced plans to invest US$2bn over the next 5 years to increase production and move up to 950,000oz/annum.

Palladium US$733/oz vs US$717/oz yesterday -

Silver US$36.61/oz vs US$34.66/oz yesterday - Prices have picked up this morning following the dramatic fall last week. Prices are expected to return some of the loses this week as general market sentiment suggests that the falls last week were excessive.

Rhodium US$2200 vs US$2,250/oz yesterday

Diamond prices should continue to rise as demand firms and supply remains constrained

• Better non-farm payrolls in the US and a return to confidence in many markets is driving demand for diamonds.
• While demand in the US fell dramatically through the financial crisis some recovery is expected. The US accounts for some 40% of diamond demand down from 50% before the crisis.
• Headlines point towards strong demand growth in developing markets of India and China while Western markets continue to recover.
• Forecasts are for demand to remain broadly equal to last year
• Supply from DeBeers and Rio Tinto is limited this year mine closures and deepening mining operations causing new demand to push prices higher.

Base metals:

Copper US$8,936/t vs US$8,712t yesterday - Prices are up this morning as the market digests the non farm payrolls figures last week as estimates that the outlook for base metal demand improves.

• Output from Peru increased by 8.6 % in March to 107,859 as operators such as Xstrata increased activities.

Aluminium US$2,613/t vs US$2,579/t yesterday -

• JP Morgan has raised its aluminium price forecast for 2011 to US$2,525/t from the original estimate of US2,425. The bank is citing a rise of around 7% in global demand and 10% in Chinese demand.

Nickel US$24,800t vs US$24,100/t yesterday - Goro commissioning extremely problematic at present. This news is bound to lift prices further.

Zinc US$2,179/t vs US$2,083/t yesterday -

Lead US$2,346/t vs US$2,230/t yesterday -

Tin US$30,000/t vs US$28,450/t yesterday -

Energy:

Oil US$111.67/bbl vs US$106.08/bbl yesterday - Prices are up this morning, recovering from the fall last week as demand prospects in the US improve.

Natural Gas US$4.272/mmbut vs US$4.223/mmbtu -

Uranium US$55.25 vs US$55.25 last week -

Coal - Prices in China reportedly rose for a 6^th week to the highest price in almost 24 months. Prices moved up to touch the US$125/t mark as industrial growth and lower hydropower output increased the use of coal according to Bloomberg.

Nuclear - Chubu Electric Power is looking at shutting down all its nuclear reactors at the Hamaoka plant in central Japan following a request from the Japanese prime minister. Chubu Electric Power is looking to LNG and coal for replacement power supplies.

Other:

Tungsten prices - Rise to $440-445/ MTU, see chart in section below. There are relatively few Western tungsten producers. We follow Ormonde Mining*, Vital Metals and Heemskirk.

Rare Earths - Local media is reporting that officials at the Ministry of Finance have suggested that China may increase the resource tax currently imposed on rare earths. Expectations are that China will further tighten its export quotas for the minerals used extensively in the electronics industry.

COMPANY NEWS

Ormonde Mining* (ORM LN) 10p mkt cap £30m - Tungsten prices rise as Ormonde selects engineer for project

BUY - Target Price 21p

• Ormonde Mining have selected a specialist engineering firm to work on the Barruecopardo Tungsten project.
• Jacobs, formerly Aker Solutions in the UK is to work on a 'cost and definition study' using metallurgical test work being done at Wardell Armstrong's Wheal Jane Laboratory in Cornwall, UK.
• This work should then feed into a Definitive Feasibility Study.
• Initial work is extremely encouraging and suggests that a relatively coarse grind liberates the key tungsten bearing mineral within the ore. This means that costs should be low for tungsten recovery and power usage should be light.
• Tungsten prices have now more than doubled over the past nine months to $440-445/mtu. The meteoric rise of the APT tungsten price is due to rising demand for machine tools and other cutting components. The Chinese government which has been restricting exports and imposes duty on exports recently impounded 160tonnes of ferro-tungsten from smugglers. Ferro tungsten is sometimes declared as silico manganese for lower quotas and the Chinese government is now checking such cargoes to ensure that duties are properly paid and smugglers are caught.
• Valuation: If we apply the current tungsten price of $440/mtu APT to our model of the Barruecopardo project then our valuation rises to 51 pence per share.

Conclusion: The Barruecopardo Tungsten project is known within the industry as a good quality and relatively good sized project. The ease of metallurgical liberation of the tungsten is good and the plant should commission relatively well compared with some other tungsten projects.

*Fairfax acts as broker to Ormonde Mining

Tungsten APT price chart (Jan 2004 to 6 May).

Price now $440-445/ MTU

Mining last week:

Ampella Mining (AMX AU) 206c/s, A$416m - pre-feasibility starts on 2.2moz Konkera gold project BUY

Centamin Egypt (CEY LN), 130p Mkt cap £1.42bn BUY

Medusa Mining* (MML LN) 522p mkt cap £975m - Fidelity take stake to over 11% BUY

Glencore - price range set at 480p - 580p as Glencore prepares to publish prospectus for listing

Hambledon Mining* (HMB LN) 5p mkt cap £36m - Rising gold sales push Hambledon to profit in 2010

Ormonde Mining* (ORM LN) 10p mkt cap £30m - placing raises £4m to advance Tungsten project

BUY - Target Price raised to 21p from 19p

Glencore - unapologetic opportunists reap rewards of strategic position

Shanta Gold* (SHG LN) 32p, mkt cap £58m - Chunya gold resource rises to 1.2moz

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