Good Morning,

A marked slowdown in activity and a narrowing of the trading range in the overnight hours followed yesterday's drama in the gold market. Prices oscillated between nearby support at $875.00 and a high of near $884 per ounce, with the London AM Fix coming in at $877.25 earlier. Participants remain mindful of yesterday's Fed signals on the dollar's value targets as well as of the still slipping crude oil price (last seen at $123.65). The next three sessions could still see stabs towards higher prices if the slew of US economic statistics in the pipeline contains any potentially dollar-damaging surprises. However, the dollar dips could be contained as concerns about possible direct Fed action have now replaced the perception that the only ammunition the central bank had was in the form of words.

New York spot gold prices opened the midweek session at $882.80 bid, showing a $1.50 gain as the greenback remained fairly firm at 73.34 on the index. The trade saw mortgage applications decline last week, but will likely focus on Q1 productivity figures and the ISM non-manufacturing numbers for May ahead of Thursday and Friday's more impactful statistics. Taking on significant positions still appears dicey but the tone in the complex is noticeably more subdued. Silver lost 6 cents to open at $16.71 while platinum fell $9 to $1994 and palladium dropped $3 to $427. Last check on rhodium showed a $50 loss at $9660.00 per ounce.

While he may have recently taken on a fresh gold position after having been out of the metal for about a month, noted advisor Dennis Gartman sees the Fed's body language as not particularly beneficial for the hitherto ultra-hot commodities complex. Mr. Gartman opines in a Bloomberg story that:

Commodities will become ``much, much weaker'' after Federal Reserve Chairman Ben Bernanke signaled support for the U.S. dollar, Dennis Gartman, economist and editor of the Gartman Letter, told clients.

``We are facing a tidal wave of selling,'' Virginia-based Gartman wrote in his daily newsletter today. Even agriculture prices ``may come under pressure following Dr. Bernanke's dollar support.''

Crude oil, gold and copper fell today as the dollar traded near a two-week high after Bernanke yesterday said that interest rates are ``well positioned'' to promote growth and stable prices. He also said the Fed is aware of the effect of the dollar's decline on inflation.

Many will, of course, argue that this is too little and too late and that the fuse has been lit on inflation and that no amount of talk or action can stop the cannonball from flying. As far as that goes, one might do well to take a look at previous such liquidity extraction exercises which proved successful for the Fed. We fully acknowledge that this will be quite a climb to undertake (rates need to go up by about 200 basis points to get real rates to zero) but, election year or not, the Fed appears not only cognizant of the alternatives but also not at all in the mood to let them become reality.

Stay tuned for the econ data, look for the aforementioned tries to higher levels but remain alert and defensive. Tidal waves do not appear tall whatsoever in the middle of the ocean.

Happy Trading.