Good Morning,

Following four days of significant price declines, gold bullion was able to stabilize and then briefly recapture the $1100 mark during Asian overnight trading on Monday. The precious metal's climb to higher levels was aided by a marginal decline in the US dollar and by emerging physical Chinese buying ahead of the beginning of the Year of the Tiger next month.

Also noted in overnight dealings, were scattered Indian gold purchases, brought about by bargain hunters whose perceptions that gold's dip to just under $1090 last week was good enough to make for a visit to the local bazaar, even if this was not going to be the mother of all shopping sprees.

New York spot metals dealings started the week off on a positive, (albeit more moderate than the overnight one), tone, with gold climbing $3.50 to $1094.90 per ounce, as against a 0.08 fall in the greenback's value on the trade weighted index (to 78.19) and as against a modest loss in crude oil (down to $74.34 per barrel).

The picture was a tad mixed in the white metals, with silver adding 7 cents to open at $17.04 per ounce, and platinum dropping $2 to $1545 the ounce. Palladium continued to rise, gaining $3 to $434 per troy ounce. Rhodium remained at $2460 per ounce, following its sizeable drop last Friday. Gold is attempting to repair at least a portion of last week's damage, while remaining vulnerable to bouts of additional liquidation. The focus has in part shifted to the new darlings on the ETF scene- those in noble metals.

Looking at the day ahead, market analysts at GoldEssential.com observed that whereas a bit of recovery is likely, there's good resistance brewing ahead of $1,103 and $1,106.80-$1,110 an ounce and concerns still linger on how hard position limits on gold futures trading would impact speculative interest, if laid down by the CFTC and the U.S. dollar is ultimately looks like extending recent gains, which is expected to limit the upside in gold, at least for now.

The looming changes in banking activities engendered by the possible advent of the newly minted Volcker Rule and the CFTC's scheduled March hearings (to discuss about possible position limits in precious metals futures markets to curtail speculation and excess risk exposure) has shifted the psychology in the markets as of last week.

Also adding to downward pressure in commodities is the perception that the Massachusetts Republican victory last Tuesday will usher in an era of less government largesse and a dollar-supportive environment in the not-too-distant future. Such developments are all potential game-changers in these markets - and they have been thriving based on largely one-way assumptions since late 2007.

On the COT side of the gold market equation, GoldEsssential analysts observe (and this was computed before the large drop that battered the market by last week's end) that: the absolute level of the Net Speculative Longs to Open Interest ratio remains slightly (2 %) above its 2-year average, which indicates that a predominantly long positioning amongst large speculators still exists, and continues to carry significant liquidation capabilities.

Goldessential continues to estimate that there remain chances of a very real drop to the $1,000 an ounce support mark to take place later in the year, although it currently sees limited justified downside potential below this level.

GoldEssential is not alone in tendering the probability of a decline in values sometime during 2010, even though investors will likely continue to give a favourable nod to the yellow metal, given global uncertainty levels. Analysis provided by Standard and Poors -and relayed to us via Dorothy Kosic over at Mineweb- indicates that:
In a recently published analysis, S&P said: Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices.
The analysts raised S&P's gold price assumption by 13% from $800 per ounce to $900/oz this year. Gold price assumptions were raised by 23% from $650 to $800 for next year and by 12% from $625 to $700 for 2012.
According to market figures, however, investment demand exceeded jewelry demand in 2009, and appears to have become a stronger influence on short-term prices. We therefore expect prices to remain volatile, and vulnerable to a downward correction, the analysts cautioned.
Not everyone sees a sea-change as imminent, in the wake of last week's momentous White House proposals on banking regulation. Simon Johnson, writing for Roubini Global Economics sees a bit of a smoke & mirrors arrangement as possibly afoot here, laced with a good dose of good old-fashioned political gamesmanship. Or else, we have a Tim Geithner 'problem.' Simon says:
At the broadest level, Thursday's announcement from the White House was encouraging - for the first time, the president endorsed potential new constraints on the scale and scope of our largest banks, and said he was ready for a fight.  After a long tough argument, Paul Volcker appeared to have finally persuaded President Obama that the unconditional bailouts of 2008-2009 planted the seeds for another major economic crisis.
But how deep does this conversion go?  On the deep side is the signal implicit in the fact that Volcker stood behind the president while Tim Geithner was further from the podium than any Treasury Secretary in living memory.  Where you stand at major White House announcements is never an accident. Increasingly, however, there are very real indications that the conversion is either superficial (on the economic side of the White House) or entirely a marketing ploy (on the political side).

One of the indicators that RGE's Simon Johnson uses to bolster this kind of take on the matter is...Mr. Geither himself. He, apparently, was either dreaming, or did not -at all- get the message that President Obama tried to convey in some pretty daring sentences (as in those referring to him being 'ready for a fight' with the big banking boys). Simon thus concludes that:

The general principle behind the Volcker Rule is clear.  Here's what President Obama said, Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.

Which, then, (in light of the fact that Secretary Geithner's spin on the Volcker Rule, Thursday night on the Lehrer News Hour, was in direct contradiction to what the President said), could mean that:
There are two possibilities given that Tim Geithner is a smart person with a great deal of relevant media experience - he did not misspeak. Geithner is not on board with the policy shift.  This would be understandable, as it directly repudiates what he has worked hard to achieve over the past year. Geithner does agree with the obvious interpretation - provided by the President - of the Volcker Rule and associated principles.  As an expert, he is certainly entitled to his own view, but this is beyond awkward.
President Obama said, quite plainly, So if these folks [the big banks] want a fight, it's a fight I'm ready to have.  He cannot fight this issue and these people effectively if his Treasury Secretary is not on board. If the Democrats go at this fundamental shift in policy in a half-hearted manner or with mixed messages, they will be hammered so badly in November that the Massachusetts special election will feel like a victory in comparison.
A pretty data-intensive week is now on tap, giving ample opportunities for trading and continuing volatility. There is ample repair work for gold to do, but dollar strength (absent major negative impact news) continues to be manifest, thus gains could run into limits. The obvious focus, for now, remains on the FOMC meeting on Wednesday, and on Friday's advance GDP figures for Q4.

Happy Trading.

 Jon Nadler