Nix Au on MCX?

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Good Afternoon,

Price erosion was once again the feature of the mid-week precious metals trading session. For a change, the precious metals responded to a declining crude oil and rising US dollar value. Gold broke through the $900 level for the second time this month as participants continued to be frustrated by the metal's recent lack of response to outside drivers and by investor apathy. Yesterday's ECB signals that interest rates will remain at least on hold or perhaps be raised in case inflation gets to uncomfortable levels has been somewhat offset by the fact that Fed watchers no longer expect a half point cut next week, and even a quarter point is beginning to look less than certain. Here is why:

According to Bloomberg, it is becoming apparent that: "Federal Reserve policy makers, sensing both renewed inflation dangers and a possible economic boost from government rebate checks, may be nearing a pause in interest-rate cuts after the fastest reductions in two decades. In remarks this week, Fed Governor Kevin Warsh, San Francisco Fed President Janet Yellen and three other district- bank presidents voiced concerns about rising prices. Harvard University economist Martin Feldstein, who for almost 30 years has headed the group that decides the dates of recessions, called for an end to Fed rate cuts.

Investors are increasingly taking such talk, along with economic data and company earnings, as signs that the Fed will leave interest rates unchanged for the rest of the year after a quarter-point cut on April 30. The central bank has already reduced rates three times this year, to 2.25 percent.

``We are close to the end of rate cuts,'' said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. ``The economy will be improving. Also, the inflation pressures are only intensifying at this point.''

At last check the dollar was shown at 1.5897 against the euro and at 71.85 on the index, while oil was trading about $2 lower (at $117.87) than its all-time record high seen on Tuesday. New York spot trading was some $11 lower at last check, quoted at $905.00 on the bid side. The low of the day came in at $896.40 in active mid-morning dealings as the metal lost nearly $20. Today's calendar offered only mortgage applications and consumer comfort index figures, While the current pause is still seen as a period of consolidation, the risk of a breach of the $900 level remains in place (as seen today) and could take bullion to the $880/$890 area. We would expect some fresh buying to come into the market at such levels from quarters that are currently holding out on the sidelines. Silver lost 59 cents to $17.01 while platinum was off by $24 at $2001 and palladium slipped $10 to $446 per ounce. Projections from the firm Investec yesterday still put the high in platinum this year near $2400 on the near half million ounce deficit that could be tallied during the period.

We keep getting a slew of correspondence from North American jewelers, designers, and fabricators who are finding it extremely difficult to make a living under current gold price conditions. Herewith, and excerpt from an e-mail just two days ago, from a Los Angeles businessman in the industry:

"While retailers on New York's 5th Avenue and Beverly Hill's Rodeo Drive might not feel the impact of the recent rise in the price of the metals, the small scale retailers at the local strip mall and the family owned jewelers are finding it more and more difficult to entice customers to purchase a ring or a necklace they used to be able to buy back in 2000 for $150, but now cost more than $500.

I can tell you now that the gold price, being more than three times higher than it was back in 2001, is severely impacting the jewelry sector in a much more negative way than it is being portrayed by mainstream media. And while most of America is reluctant to use the terms, "Recession" and "Inflation", we, in this market, have been dealing with the reality that inflation over the past four years has led us into this recessionary period.

While my family and company are able to manage through this difficult period by cutting back our expenses and keeping our purchasing to a minimum, we receive weekly, almost daily, reminders of the negative impact of the recent surge in the price of gold when we receive calls from friends within the industry alerting us of yet another closing of a retail store or factory...companies that have been around for generations, here in the US or abroad in Italy, Turkey, Korea, etc...

This is an awful period for those of us in the jewelry sector. With our volume down 50-70% since 2001, it is most definitely not a happy time for us, not just my company, but for the gold jewelry industry in general. I believe the financial institutions recent interest and attraction to the bullion was one of the worst things that could have happened to the jewelry industry."