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Good Morning,

After trying to climb back to near $935 per ounce, gold prices gave way and dropped back to near where they left off in New York on Monday. A low of $917.20 was once seen overnight and prices encountered some support more from bellicose Iranian statements than robust Asian buying. Falling oil values kept a lid on advances as Texas Tea pierced the $140 level at a time when the majority of players had expected it to have done the same to the $150 level. The US dollar however, was still marking time at near 72.80 and at 1.569 as Janet Yellen's vision of another rough patch coming up for the US economy kept dollar bulls on the nervous side.

Over in Japan, leaders of the G-8 voiced their "strong concern" about rising commodity prices, especially those of oil and food. In a statement released today, they said that commodity prices "pose a serious challenge to the world economy." They also said that they are determined to continuously take actions to ensure stability and growth of world economy. Let's see what that translates into where the rubber meets the road. The take-home finding here is that the G-8 leaders are in sync on the vilification on inflation as Public Enemy #1. Therefore, expectations that they might start acting accordingly are keeping interest rate watchers on extended work shifts.

New York's Tuesday trading session was off to a negative start, with bullion dropping $5.00 to $921.00 per ounce as participants were eyeing the upcoming release of US gasoline inventories figures (expected to show a rise as Americans drive less and do so in lesser (than immense) vehicles. Crude was trading at $139.05 at last check. Silver dropped another 23 cents on the open, quoted at $17.56 while platinum made up very little of yesterday's losses by rising $4 to $1959 and palladium lost $2 at $442 per ounce. Support for today's bullish crowd comes from Iranian war rhetoric that warns of a direct strike on Tel Aviv and the US ships in the area - if attacked. Meanwhile woes over at Fannie's and Freddie's financial houses kept pressure on related equities and traders nervous.

Automotive world news reveal a GM ready to write obituaries for some of its brands like it did with Oldsmobile, and looking to drop others such as SAAB (one of the better ones it owns). The noble metals might pin their hopes on production and sales overseas as North America undergoes a structural shift in personal transport. Minivans RIP, SUVs RIP. Trucks on life support. Marketwatch's Irwin Kellner feels that the foreign exchange value of the dollar is the critical component of soaring oil prices and that the two most effective ways of helping the current situation go away would be intervention (in the currency markets) and/or a hike (or series thereof) in dollar interest rates. Neither of them pleasant for some parts of the world or of the speculative crowd. Unless, of course, one is a gold speculator. At this time, some of them see nothing but bullish graffiti on the proverbial wall or worry. Which, is something to worry about.

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In today's focus story, Marketwatch's Mark Hulbert is worried that the lack of worry among gold timing newsletters may yet have some of them suffer the same fate as the wise guy running ahead of the bulls this weekend in Pamplona, Spain. He is now a gutless runner. Mark reports:

"Almost all commodities fell markedly on Monday, and gold was no exception. Unfortunately for the gold market, contrarians would not be surprised to see more of the same. That's because sentiment among gold timers remains too frothy to support a significant rally.

Consider the latest readings from the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. As of Monday night, the HGNSI stood at 64.3%.

That's the highest level for this sentiment gauge since March, when gold bullion was above the $1000 level. At that time, the HGNSI rose to a marginally higher level of 65.4%. Over the six or so weeks following that reading in March, of course, gold bullion fell by more than $100 per ounce. To put this contrast another way: The average gold timer is, for all intents and purposes, just as bullish today as when an ounce of gold bullion was trading for more than $100 more. This suggests that the gold timers are more accurately described as being stubbornly bullish than as pessimistic.

Another indication that the gold timers are stubbornly bullish: The HGNSI remained steady on Monday, despite the turmoil in the gold market. This is not the kind of sentiment reaction we would be seeing if there were the kind of wall of worry that bull markets like to climb. The magnitude of the break in commodity prices early in Monday's session appeared to some to be more reminiscent of a bubble popping than normal day-to-day volatility. Does the sentiment picture support this suspicion?

I wish the HGNSI would allow for a clearer answer. As it is, it is unable to tell us whether or not we are even in a commodity price bubble and, if so, whether it has just popped. But what the HGNSI can tell us is that sentiment would not provide the gold market with a safety net if indeed it were to begin a bigger decline. The HGNSI's record high, according to the Hulbert Financial Digest, is 90%, or just 25 percentage points higher than where it stands now. That means that the majority of the in-and-out traders that affect the shorter term trends are already invested in the gold market; relatively few of them remain on the sidelines to propel the market higher by turning bullish in the future.

Another way of putting this: Risk in the gold market is at above-average levels right now.

The ideal scenario, from a contrarian point of view, would be for the gold timers to completely throw in the towel, becoming so fed up with the gold market's recent volatility and weakness that they refuse to bet on the next short-term rally. Ironically, that would be the rally most worth betting on, according to contrarian theory.

That's nowhere close to the kind of sentiment environment that exists now.

(Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.)

Corrective action continues to be the feature of the day, despite open interest numbers that would suggest many are still looking for a pop back to $936/$945 and despite a $960-plus level that still needs to be achieved in order to get the yellow metal back on a four-digit target track. Watch that dollar.

Happy (Careful) Trading.