Good Morning,

Bullion markets tried to stabilize and eke out some gains overnight as crude oil rose more than $1 on supply disruptions. However, the US dollar's gains against the euro broke the 1.56 mark and kept a lid on gold's gains to just above $892. Mild physical bargain hunting was seen in the overnight hours but, many buyers remain of the opinion that they might be able to pick some more metal up at or beneath $875 and possibly as low as $845 in the near-term. Gold ETF holdings broke through the 600 tonne level for the first time since last November, indicating continuing waning fund interest in the metal at a time when its performance failed to match positive background conditions such as were seen just three days ago for instance. Investment bankers Dresdner Kleinwort issued a report that cautions that when a market stopped rising despite positive fundamentals, investors should get out of their trading positions. Gold is likely to have already reached the year's high and to come under pressure particularly in H2. We thus recommend not only closing long positions in gold, but also selling gold short, the firm said.

New York spot gold trading opened on an indecisive and nervous tone, and although not many expect a breach of $875 to occur in today's session, the yellow metal remains in danger of follow-through liquidations and book-squaring sales ahead of the weekend. The market was showing a $2.00 gain on the open, quoted at $888.60 bid and participants remained on dollar-watch as only consumer sentiment and weekly leading indicators were expected to trickle in later in the day. Gold was heading for its largest weekly drop in five after the 1.60 level euro seen on Tuesday failed to ignite further large-scale investment buying. The focus has now definitely shifted to next week's Fed meeting, and odds makers are still scaling back rate cut expectations following the apparent effectiveness of the barrage of dollar-supportive words that have been flowing into the market (mainly) from Europe of late. Silver was up 1 cent at $16.75 but platinum lost another $29 at $1934 in part because of yesterday's catalytic application substitution news from Japan. Palladium fell $5 to $433 per ounce. Crude oil was up 67 cents to $116.73 and the dollar reached 72.80 on the index.

For those of you who missed the silver-based catalyst story, here is the essence of the news as reported on Bloomberg yesterday:

Mitsui Mining & Smelting Co. reported developing a silver-based diesel exhaust catalyst, replacing the more expensive metal. Palladium also declined. Mitsui, a partner in Japan's biggest copper smelter, plans to start selling the silver-based devices in Japan, the U.S. and Europe in 2012, according to a statement yesterday. Platinum has jumped 54 percent in the past year, partly on expectations that demand for automotive catalysts will rise as governments impose tougher pollution controls. Mitsui Mining follows Japanese automakers Nissan Motor Co., Mazda Motor Corp. and Daihatsu Motor Co., which last year announced plans for parts that reduce platinum usage to cut costs. Mitsui said the silver-based technology is for use in farming and construction machinery, rather than car engines. Consumption by automakers accounts for more than 60 percent of global platinum demand, according to estimates by Johnson Matthey Plc, which makes about one-third of the world's auto catalysts.

Marketwatch's contributing writer Mark Hulbert opines in his latest report that: I'm afraid that the gold bulls no longer can count on sentiment to support a rising market. This represents a big shift from the situation that prevailed the last time I wrote about a contrarian analysis of gold market sentiment, a little more than two weeks ago. At that time, the editor of the average gold timing newsletter was short the market, which from a contrarian point of view was a good omen. Gold bullion did jump nearly $30 per ounce over the next week or so, but in the last few days it has plunged - losing $20 during Thursday's trading alone. Net, an ounce of gold bullion now fetches about $25 less than it did when I wrote my earlier column. That would be disturbing enough to contrarian analysts. But there's more: The editor of the average gold timer is now markedly more bullish than he was two weeks ago, despite gold's weakness. This suggests that the prevailing mood among gold timers has shifted away from skepticism that the bull market is alive and well, and towards one of belief.

That's not a good sign. Consider the latest readings of 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 Thursday night, the HGNSI stood at 25.0%.

On April 9, the date of my earlier column, in contrast, the HGNSI stood at minus 17.9%. In other words, despite a $25 net decline in gold's price, the average gold timer has increased his recommended exposure by nearly 43 percentage points.

The picture painted by these sentiment data, therefore, far from being of the wall of worry that bull markets like to climb, is of the slope of hope that bear markets like to descend. What caused the gold timers' change of heart? There was no one factor. But contrarians don't really care why advisers become bullish or bearish, and focus instead on the fact of their doing so. And, right now, contrarians would feel a lot better about gold's prospects if the average gold timer currently was much more pessimistic, ready to throw in the towel on gold's bull market. If that were to happen, contrarians would return to the bullish camp on gold.

On a final note, if you are interested in silver (and the Mitsui news may give some additional reasons to be interested in it) and want to get the real picture of what is going on in that market, do yourself a favor and make a small investment into the CPM Group's 2008 Silver Yearbook, set to be released on the 29th of the month. Rather than trying to decide which particular silver pundit may be in possession of the correct set of facts regarding current market conditions, you now have the opportunity to go straight to the source that actually gathers and dissects data for a living and learn the hard numbers and actual trends in the metal. Kitco is a proud sponsor of this quality research and we believe you will benefit from delving into its contents. You will find the book available here:

Watch for futures closing levels, expect a mild bounce after recent losses, but stay on the defensive - the trend should not be ignored.

Happy Trading.