Three Wise Men

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Good Morning,

After touching a new record of $976.90 in overnight trading, gold prices were tracking closer to $967 just before the opening of the New York session this morning. Most other markets that also recorded overnight peaks retreated as well. Crude oil was off 62 cents at just under $102, the US dollar was up to 73.82 on the index while it was showing $1.518 against the euro and 104.12 vis a vis the yen.

Participants took yesterday's words on potential small bank failures by the US Fed Chairman as a signal to add to the rising mountain of long bets in various commodity markets. Some of the bettors are may be as seasoned as the fellow who just cost MF Global a fifth of its value by losing $141 million on wheat contracts bought with funds he did not have at his disposal. Oops.

New York spot bullion opened the final session of February at $965.20, down $4.30 per ounce as players awaited the release on non-farm payrolls and unemployment figures. Whether or not the numbers will trigger a fresh bout of dollar selling remains to be seen, but the current sentiment remains anchored to the expectation that the Fed will cut rates in March, and cut them with an extra dose of vigor to try to reignite the US economic engine. Thus far, all it has managed is to turn it over, if that.

Silver lost 35 cents to $19.40 on the heels of not-so-light profit-taking. The noble metals presented a mixed picture, with platinum adding $2, at $2143 and palladium losing $18 to $561 per ounce respectively. February's gains in gold hark back to another impressive month of gains - those seen in April/May of 2006 when the metal rose from $597 to $725 over a 30 day period. Hopefully, this time, the aftermath of the spike will be different.

This session will be marked by choppiness as the trade digests the upcoming statistics and squares books ahead of the weekend. Bad news from AIG ($5 billion out the window, and SwissRE could keep the markets busy yet. However, signs of the quantification of the credit debacle are starting to emerge. UBS said today it believes the size of the problem to be around $600 billion. Let's see what crystal ball they are using over there.

Here is today's version of the Friday funny - (a Kitco office tradition of sending the joke of the day). Bloomberg reports that:

- "Treasury Secretary Henry Paulson reiterated yesterday he favors a strong dollar.

- President George W. Bush said the currency should reflect the economy's ``fundamentals''

- [Ben] Bernanke told a Senate panel the declines [in the US currency] have resulted in ``some improvement in

the trade deficit, which is a positive.''

To which, we say: