Good Morning,

Friday's metals market action started off with nice gains across the entire complex. Although no significant shifts took place in euro (@ $1.289) or US dollar (@ 82.55 on the index) players appeared eager to undo the five-day long string of sub-$1200 price settlement days and the five-week long overall price downdraft in gold.

The upward move in gold was seen as largely technical in nature and significant gains (beyond the broader $1205-$1220 zone) appear difficult to achieve now that investors are exhibiting ebbing fears of an imminent eurozone crisis while manifesting rising degrees of risk appetite for equities and other assets in the process. Retreating crude oil (falling below $79 per barrel) made progress to the upside somewhat difficult for gold as well.

Spot gold was ahead by $8.20 per ounce at the start of the final session for the week, and was quoted at $1202.70 on the bid side. Silver was ahead by 9 cents at the $18.20 spot bid level, while platinum showed a robust $15 opening gain at $1539.00 the ounce. Probably not factored into initial gains in the metals, our good old and very volatile friend Kim Jong-Il's threats to unleash a 'physical response' to military exercises being conducted by the US and S. Korea in the region.

Indian gold demand, while faltering on occasion this week as price recovery became manifest in the metal, shows signs that it is fairly decent ahead of festivals in August. Suppliers have reported sporadic difficulties in satisfying orders but the majority of would-be buyers are still expressing hopes that they will be able to pick up some baubles at prices under $1180 per ounce.

Gold spot gave up most of those initial gains and after having touched the $1205 resistance point, within the first half-hour of trading, slipped beneath the $1200 psychological pivot point once again. Negative psychology in the silver market, boosted be deflationary apprehension still appear poised to push the metal beneath the $17 and possibly $16 price points in the near to medium term.

Palladium rose $4 to start at the $458.00 per ounce level and rhodium added $50 to achieve a bid quote of $2190.00 the ounce. Automaker Ford reported robust second-quarter profits of $2.6 billion this morning, while European giant Volkswagen AG reported a 16% pop in worldwide new car sales. The firm characterized its sales jump as 'vigorous' and included China, Europe, and the US in the areas that it identified as contributing to the increase. No doubt, the 'vigorous' part refers mostly to China, but up is up and it should be good news for the noble metals complex this morning.

Today's focus is, of course, the release of the European Union's banking sector stress test results document. Will the banks show they have enough capital (at least 6% as a ratio for Tier1) to remain standing in the event that one of three potential stress scenarios develops? We have only until 6PM Brussels time to wait.

Still, despite optimistic pre-release consensus, the list is likely to contain more or less ten institutions (mostly an amalgam of private-owned German and Spanish savings banks) likely to falter under extreme conditions. This, out of a total of 91 firms that have gone on this treadmill for evaluation. Stress test data might be a mixed bag, but economic data coming out of Germany and the UK is anything but, at least on this sweltering morning in July.

Germany's Ifo index -for example- rose to a 106.2 reading this month - a significant and unexpected leap from June's 101.8 tally. Then, the UK's GDP jumped by 1.1% in Q2 - an output figure that was much, much stronger than anticipated. But, hey, it is after all, an economist's job to be proven wrong. In this case, everyone will like these kinds of errors in judgment.

What happens post-report is anyone's guess, but recall that when the US ran a similar test on its domestic institutions, the sector recorded a 36% gain in share values in the ensuing seven-month period. Not only that, but we are now at a juncture where the US Treasury can act out its own 'exit strategy' as it announced that it is about to let go of an additional 1.5 billion shares of Citigroup that it acquired when the much-maligned $700 billion bank bailout process took place. Treasury has already disposed of 2.6 billion Citi shares out of a total of 7.7 billion it received last summer.

ECB chief Jean-Claude Trichet took to the Financial Times' newsprint waves this morning and launched a strongly worded' clarion call for central bankers to commence hiking interest rates. Applause. Here is the essence of what Mr. T had to say, courtesy of Marketwatch's Markepulse:

The time is now to restore fiscal sustainability throughout the industrialized world. Stimulate no more - it is now time for all to tighten. In the waiting camp, some argue that it would be desirable to maintain or even increase the fiscal stimulus to avoid jeopardizing the economic recovery. Others claim that fiscal consolidation will have a negative systemic impact on the global economy by damping the growth environment. I disagree with both these views. More applause.

Mr. Trichet also called for public spending cuts and tax increases in order to reverse the unprecedented fiscal deterioration the western world is experiencing. Standing ovation with applause.

In any case, since the European stress test report will come after European markets close, there should theoretically be enough time to go on a capital-raising picnic before trading resumes next week. Giving everyone time to ponder more...pressing matters, such as Angelina Jolie's public admission that she is not 'completely sane' and that 'we all have our dark sides.' And you thought those vials of blood she used to wear and all those tattoos were just for show...? (Don't' worry; she said she does not read a single word that is written about her...)

Hey, it's Friday. We can do entertainment news, no?

Time to de-stress, in so many words,

...Happy Weekend!

Jon Nadler

Senior Analyst, Kitco Metals Inc.North America US & Canada Toll Free: 1 (877) 839-8036 Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler