Good Morning,

Overnight trading saw gold retake the $900 level following a retreat in the US dollar to near the 84 level on the index. Participants were mainly still out for 'Golden Week' in Japan and conditions continued thinner than normal, but a few more spec fund nods in gold were detectedas equations of economic recovery giving rise to higher inflation were manifest.

New York spot trading opened with an $8 gain in bullion, with a $904 bid per ounce. At opening time, the dollar was seen stable and showing a small gain, oil was slightly higher, and Dow futures sank following BofA stress test conjectures. Gold remains at risk of undergoing its own stress test at the mid-$800 area as seasonality factors will slowly start taking over following the passage of the next few weeks. Otherwise, the metal continues to be range-bound and is subject to fund plays, mainly. Like the one today, that might once again push it near $920, for the heck of it.

Russia's gold output rose 42% in QI, mainly on a better than 51% gain in mine output. Scrap output rose nearly 12% during the period. Indian purchases nearly dried up as of yesterday, despite the auspicious marriage season that stretches into late June. Interest is not thought to revive until and unless prices stay well below $900 per ounce.

Silver gained 21 cents to $13.53, platinum added $3 to $1130,and palladium rose $3 to 222 per ounce. GM has sent notifications to several thousand of its dealers, informing them of just might make the cut or be cut altogether - this, as the June 1 deadline nears for the beleaguered automaker.

Stress test stress continued to permeate the airwaves this morning. The latest torpedo to slice through these muddy waters was a story that BofA might/will need $34 (how precise a figure for an unconfirmed rumor can one get?) billion in additional capital in order to make it through whichever scenario the test dry-ran the firm through.

Now, remember, this is not a fresh injection of capital. It is a conversion into capital from the $45 billion the bank has available for such, and other needs. Some 12 other banks are thought not be required to find/raise new capital. Enough stressing already. Tomorrow will simply tell.

These test revelations could be the among the last watershed news item to make it to the front page of the NY Times during this now winding down crisis. Today's green-shoots type story comes from the jobs niche. Private sector rolls were down less than forecast, at 491,000 in April. The news, once issued, stoked stock futures, and wiped the slate clean from the BofA jitter graffiti.

Time now for the recurring Hulbert contrarian analysis of gold market conditions.

Gold has frustrated both the bulls and the bears over the last couple of weeks, as bullion has remained within a fairly narrow trading range. Tellingly, however, the bulls have not let this frustration get them down. On the contrary, in fact, the editors of gold timing newsletters are more bullish today than they were two weeks ago.

And that's a problem, according to contrarian analysts, since the market likes to climb a wall of worry.


Consider 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. Its latest reading is 23.5%, versus 16.2% two weeks ago. Yet gold bullion is essentially at the same level today as it was then.

A similar picture is painted by the HGNSI's average level over the last two months. Since March 9, when the stock market hit what at least so far is the low point of the bear market, the HGNSI's average level has been 12.3%, about half of its current level. And yet, over the same period, gold bullion's average price has been $904.60 -- essentially where it is trading today. It's not encouraging, from a contrarian point of view, when the trend is away from seeing the glass as half empty to seeing it as half full.

I reached a similar conclusion two weeks ago, when I last wrote about gold sentiment. Given the reactions that earlier column elicited, it's worth stressing that contrarian analysis is a short-term trading tool, at best. ( Read my April 22 column. )

My econometric analysis, for example, shows that over the last five years, the HGNSI's greatest forecasting power has been at the one-month horizon. So the bearish conclusion reached currently by contrarian analysis is not inconsistent with the many current predictions that gold will trade much, much higher in the next several years. After all, gold could easily trade lower over the next several weeks before entering into a longer-term uptrend.

It's also worth stressing that sentiment isn't the only factor affecting gold's shorter-term direction. It may be, for example, as many fervently believe , that several of the world's central banks are manipulating the gold market to keep it from rising as much as it otherwise would.

But, even if central bank intervention is a factor affecting gold's short-term direction, it can't be the only one. My econometric analysis shows a statistically significant inverse correlation between the HGNSI's levels and gold's subsequent performance. That is, higher HGNSI levels are more often than not followed by sub-par gold market returns, and vice versa.

The bottom line? There are no guarantees. But, given the HGNSI's recent readings, it would appear that the sentiment winds will not be blowing in gold's sails over the next few weeks.

That's one man's opinion, as based on his reading on the tea leaves in the hard-money newsletter marketing machine. Had Mark applied the same stress test to the flavor of gold forum chatter, and bullion dealer press quotes regarding various (read: any) events (IMF, China, etc.) that affect gold psychologically (at first, and then in market terms as well), he would have drawn an even more distressing conclusion.

An even more disturbing (to some) conclusion was recently drawn in an article in gold manipulation. The author surmised that government suppression of gold prices will succeed, and, with that success, we will see the end of the free market system in the USA. Quite the reason to 'back up the truck' wouldn't you say?

Naturally, we disagree. Completely, And, we keep evangelizing the core 10% holding in gold as financial life insurance. But, hey, we've disagreed on other matters as well. Like the crisis. We are in the midst of the worst financial crisis the world has ever seen. ThisIS Armageddon. THE Armageddon that has been written about for three decades.

Now, look around. How bad are things, really? 90%+ of US workers are working. 94% of US mortgages are being paid on time. By responsible, employed debtors. 8300 banks remain on the US landscape. A dozen may have problems. The financial system has remained vertical. There is no sign of Mad Max in Times Square. One-man cabin sales in Vermont are stalled.

Happy Trading.