Good Morning,

Losses in gold prices intensified overnight as Asian trading saw equity margin call-related liquidation and as participants digested the newly issued IMF assessment of the prospects for the global economy. Assets fell in concert during the night as gloom descended on market players of different orientations. The dollar fell a bit to 72.25 on the index, the Nikkei lost another 138 points amid warnings of a weakening Japanese economy due to rising prices, and crude oil fell to just above $108.00 per barrel. Gold touched a low of $902.40 ahead of the New York session.

New York spot gold opened with a $7.50 loss this morning, quoted at $908.00 per ounce and threatened to break under $900, but the situation reversed quite nicely as the dollar started to weaken and the metal made a comeback to the $915.00 area fairly quickly. The trade does not have much to go on in terms of economic data today, as only mortgage applications and consumer comfort data will be released. Tomorrow is a different story, as initial jobless claims and a Bernanke speech will become the focus. The bigger picture for speculators now also contains an awareness of the IMF gold sales and the upcoming G7 meeting. Silver lost 11 cents to start the day at $17.56, but turned those losses into a 13 cent gain within the first half hour of trading. Platinum dropped $35 to $1993 while palladium fell $1 to $453 per ounce.

As the IMF warning that total losses from the credit debacle might come close to one trillion dollars ($945 billion to be precise) was issued, so did a series of countermeasures make their debut. Canada's Report On Business fills us in on the details:

Finance ministers and central bankers of the G7 nations meet in Washington on Friday to plot their next move in response to the crisis, based on a list of recommendations from the Financial Stability Forum, a body they created.

The FSF sounds much like the new role that the Fed and the Treasury will play with regard to US market conditions going forward. Among the measures the FSF could mobilize is: the deployment of an international team to keep closer tabs on the world's big banks while demanding better risk management and information disclosure across financial markets.

To put things into perspective, the $1 trillion hit is to be measured against a $14 trillion US economy and a $32 trillion dollar global one. The problem is that the nature of the losses can snowball into loss of confidence and deflate various economies and related markets as the contagion spreads. In its recent minutes, the FOMC expressed justifiable worries that the US contraction might actually end up being prolonged and severe. A possible result? Bloomberg says that:

Commodities, rising for a seventh consecutive year, aren't ``immune'' from slower economic growth, Fitch Ratings Ltd. said. Commodity prices are unlikely to escape a demand-led slowdown resulting from the anticipated global economic downturn,'' Fitch, a unit of Paris-based Fimalac SA, said in a report yesterday.

CPM Group's London-based counterpart, GFMS opines that gold could well have a second spike later this year or early next year, and that such an achievement could bring it up to perhaps as high as $1100 per ounce. This, in their annual survey, released today:

Many of the drivers behind this investor push after all - dollar weakness, skeletons in banks' closets - are still very much with us, the GFMS's Philip Klapwijk said. But quite where [gold will] top out is a difficult call - maybe $1,100 is achievable this year but $1,200 plus could be going a bit far. Timetable for this? late 2008, early 2009.

GFMS, which provides data to the World Gold Council, said its outlook remained cautious because of the rapidly growing gap between mine production and jewelry demand, the metal's fundamental support. Jewelry demand has been hit by the surge and volatility of gold prices, which leads GFMS to predict a drop in demand of over 200 tons this year.

In its 2007 survey, the group found that the interplay between investors and the jewelry sector had largely determined the course that prices took. During the first half of last year, western investment fell but gold remained supported mainly by jewelry demand, GFMS said. But investment was the key driver for prices from September onwards, as the credit crisis flared up globally.

Mr. Klapwijk cautioned that this latest correction in gold will not be the last one nor perhaps the deepest one, as the involvement of large speculators adds a new dimension to gold's ballgame.

Watch for maintenance of the $900 level, while closing above $915 would be even more beneficial. Dollar/Oil remain pivotal. On a final note. the man who saw the Dow and gold eventually crossing price paths, Richard Russell, issued a call for an epic bull market in stocks earlier this week. Now there's food for thought in light of all of the above...

Happy Trading.