Good Afternoon,

Heavily weighed down by an initial retreat in crude oil and the dollar's rapid ascent to 72.22 on the index, gold prices took a nearly 4% tumble during the day of this final session of the trading week. Yesterday's direct comments by Eurogroup head Mr. Jean-Claude Junckers that the recent pace of euro appreciation is undesirable sent yet another clear message that officials could be seeing the 1.60 level as some kind of line in the sand beyond which the I word could replace such adjectives about currency movements. Last week's G-7 jawboning had apparently been misunderstood by markets. Thus, the sharp clarification issued yesterday, a day when the European currency threatened to break that evidently important barrier.

New York spot gold dropped sharply, and hit a low of just above $903 earlier in the day, but was still showing a $27.50 drop to $911.80 bid at last check, at 1:30 PM. Evidently, the markets got the euro message this time, and then some. The US dollar was trading significantly higher, at 72.25 on the index, and at 1.5759 against the euro. Some crude oil longs evidently unwound as well, as the per-barrel price fell to $113.75 this morning. However, following a rare Illinois earthquake, black gold rallied to a new record high of $116.19 on fears that some refineries may have sustained structural damage. Such news remain as yet unconfirmed however. On the other hand, the news that Citigroup lost $5.1 billion in the first quarter actually came to benefit the dollar, as the write-off was not as large as had been expected, thus raising the possibility once again that the worst may be over for the big firms out there. The bank is apparently in the midst of an all-out effort to clean up and shape up after a total of about $39 billion it had to send to the shredder on the subprime debacle.

Gold has now not only undone this week's handsome gains, but was actually lower than the close of two Fridays ago. The apparent lack of conviction and the stalls in momentum seen this past week were seen as problematic by some analysts. Thus, the declining tops pattern that some chartists saw emerging after the mid-March peak may well be more than a mirage. Silver fell by 43 cents, and was quoted at $17.81 while the noble metals also reversed most of their previous gains with platinum losing $10 at $2042 but palladium was adding $2 at $461 per ounce at last check. Copper, which headed south on US slowdown apprehensions dented silver this morning, and other base metals were down as well, the complex was being vacated by weak longs. The beneficiary of today's commodity sector exodus appeared to be equities, as the Dow rose more than 250 point on better than expected earnings from Google and Caterpillar. The initial catalyst for stocks today was the Citigroup news, no doubt. US Treasury debt prices fell sharply due to a significant contraction in the confidence about Fed rate cuts as we go forward. Risk appetite may be alive and well, but it may also be showing a shift in asset class preference at this juncture.

Speaking of risk appetite, our good friends at China's CCTV inform this morning that:

Thursday was a milestone in China's financial market -- it was the 100th day since China launched gold future trading. 2.5 million contracts were traded that first day, with turnover of 556 billion Yuan. But the market has been lukewarm since then. In the past month, investors have dumped their stocks, and the price of major contracts has fallen by nearly a fifth.

At the trading hall of Beijing Jingyi Future Brokerage Company, many investors are holding a wait-and-see attitude. Mr. Zhang, an investor said The direction of the market isn't clear. I need to watch for a while.

Investors hailed the launch of gold future trading at the beginning of the year. Many future brokerages saw more new accounts opened in that time than they have seen over the past two or three years. Zhang Bizhen, General Manager of Beijing Yijing Futures Brokerage said Although many investors opened accounts, only a few have actually done any trading.

The minimum for a contract is 1000 grams. The risks and profits of future trading are both large. And the frequent fluctuations in the international and domestic markets recently have made many investors hesitant. The gold future price is currently higher than the spot price due to the appreciation of the Chinese currency. Some are worried about maintaining value in the future market. But experts say it's a common phenomena and can be an opportunity for arbitrage.

Whether the skittishness seen in this lukewarm start to gold speculation in China is a result of a wait-and-see on the gold price or an expression of preference for physical, remains to be seen. In any case, it serves as further confirmation that conventional wisdom is frequently wrong when it comes to early projections.

Conventional wisdom was evidently challenged today as well, as markets took some news that may have been negative in terms of face value and treated it as a much more desirable outcome to the possible alternative. Never mind, speculation and theorizing will abound this weekend about just what took place here today. As one of our astute readers from overseas questioned in the wake of today's events, Does [wearing] tinfoil protect against metal falling from a great height? Guess not.

Happy Trading. Pleasant weekend.