Good Morning,

While the Fed's Beige Book data was on practically everyone's mind as the middle of the week rolled around, investors in China were seeing nothing but red overnight. Spooked by the prospect of potential government curbs on what has been a de facto casino, stock market players pulled serious money out of the SGE last night, and pushed it 5% lower by the close. As a result, oil and the commodities complex fell instantly out of favor, and the US dollar got a further boost - one good enough to bring it back above the 79 level on the index.

Thus, we began the Wednesday session in the markets with anticipation. Anticipation that the US GDP numbers might point in a somewhat parallel direction with a few other little green shoots seen of late: home prices on the rise in 20 US markets, stabilization in the rate of jobs losses, calmer waters in the financial sector, etc. We will learn by 2:00 pm if such hopes are well-placed or just a summer mirage.

New York spot gold dealings opened this morning with a further loss of $2.00 per ounce - quoted at $935.00 against a backdrop of a $1.18 per barrel loss in crude oil values (to $66.05), and a 0.25 gain in the US dollar on the index (to 79.29). The greenback advanced to 1.4107 against the European common currency.

Having taken out supports at $948 and art $942, bullion is tasked with proving that it can attract supporters (make that, actual buyers) at just about this level, lest it should ease back towards the previous $905 price from which it did manage the last bounce. We look for a day of possible repairs anyhow, unless GDP and/or durable goods data surprises the buying crowd in commodities, or the other crowd huddled near the US dollar. Start rolling the dice.

Leakage continues to be manifest in the gold ETF, as more than 3 tonnes were subtracted from its balances as of last night's close. For the month of July thus far, more than 26 tonnes have slipped away from the holdings of these funds. In some respects, risk appetite translates into a lessened appetite for holding the asset of last resort. Of course, some myopic scribes continue to see nothing but artifice and smoke when it comes to the dollar. Because, you know, it has only one way to go. To its grave. We've seen that movie, too. It opened in1980.

On the positive side, central bank gold sales up to date have been even lower than those we saw a year ago. Some 100 tonnes lower. For a total, thus far, of only 140 tonnes. Either those who wanted to sell have already done so in previous years, or those who remain at the table have little interest in letting go of the 'rainy day' asset considering how hard it has been coming down 'outside' for the past two years.

Speculation about the renewal of the CBGA pact continues to make the rounds among traders. We expect a bit more of a liberal framework for the new document, one that factors in the upcoming 403 tonne sale by the IMF. Perhaps one that allows for an extra 100-200 tonnes of annual sales by signatories. But, no one is counting chickens just yet. All the golden eggs are still in the carton.

Silver opened on the downside as well, losing 13 cents to start at $13.58 an ounce. Platinum fell a fairly substantial 18 an ounce, opening at $1175.00 and putting the latest foray to levels above $1200.00 into the scrapbook, much sooner than was expected by players. Palladium was off $3 at the open, quoted at $254 per ounce. Base metals did not look so hot this morning, with copper and nickel leading the loss columns (posting more than 2% drops) as perceptions that Chinese demand will be curtailed as we go forward, and that inventory build-ups have more than peaked.

Thus, it is back to the gold-dollar-oil tango for the moment. We would like to bring back the argument that one ought not to bank too much on the gold-dollar relationship (we pointed out last week what the perils of betting on that have been, historically speaking), but we will not. Because, in this summer phase at least, the betting on the close (inverse) relationship has been the safer way to go. Then again, who -before last night- counted on the Shanghai Surprise? It could be the one to bolster the greenback for the next few days, as well as the echoes of the Geithner-China 'framework for cooperation' talks, which will support it a while longer.

As we go to print, durable goods orders reveal a plunge of 2.5% in June. Ouch. Bring out the Miracle-Gro, please. That's about four times the drop that had been expected. Risk aversion anyone? Stock futures are down.

Have a nice Wednesday.