Good Morning,

Gold prices oscillated within a tighter band overnight, dipping to $979 and topping at $989 as markets in Asia were passed the torch that is still ablaze with speculative fever. Amid still softening US dollar values and rising oil prices the precious metal is seen as supported near $975 at the moment. Although it finds itself in overbought territory, gold is still drawing momentum from rising expectations that the Fed will hand it 'one for the road' by possibly cutting three-quarter points in two weeks' time. The greenback was at 73.59 on the index while crude oil was up 50 cents, just above $103.00 per barrel. OPEC ministers were seen dropping hints that they will not augment black gold output to ease prices.

New York spot prices opened with a $2.20 gain and were quoted at $985.70 bid as the trade is looking forward to the release of retail sales and consumer confidence numbers. Also on the watch list today is a speech by Mr. Bernanke. The gold bull contingent expects him to imply that he is still wielding the rate scalpel and that the focus remains on resuscitating the US economy. Not long after the open, gold eased back and was marginally down, at $983.00. Silver rose a dime to $20.41 on the open, them turned lower (to $20.28) as well, while the noble metals continued their ascent unfazed by tomorrow's pending announcement of plans to deal with the power supply problems in S. Africa. Platinum climbed $53 to $2284 (later only $39) and palladium added $11 (later only $6) to $589 per ounce.

After a 3.5% rise against the US dollar in just one week, the european currency's strength has certainly caught the eye of several finance ministers and ECB officials. Reuters tells us that:

Belgian finance minister Didier Reynders said U.S. concern over the dollar could be the first step to currency collaboration, while Trichet stressed that Washington favoured a strong dollar and ECB Governing Council member Guy Quaden called on the U.S. authorities to reaffirm that policy. There were also signs the exchange rate is starting to take its toll on European companies, with German engineering giant Siemens saying the euro is at a level that's not easy for it.

Current rhetoric still falls short of being interpreted as intervention-oriented, but analysts believe that if the U.S. gives the nod and collaborates with Europe on the issue, a departure from the hands-off stance could emerge.

Further evidence that the gold market is in the midst of a period of turmoil emerged from the Middle East overnight. Many of us have read various upbeat articles over the past two weeks about isolated examples such as gold demand rising in Egypt.

The reality on the ground in the region is, according to, that:

As the unabated and relentless surge in the gold price continued to keep buyers at bay, most jewellery outlets in the UAE suffered almost 55 to 70 per cent sales drop during the past six months compared to the corresponding period almost a year ago. Since August 2007, while gold prices have rallied 50 per cent, retail outlets in Dubai, Abu Dhabi and Sharjah faced an unprecedented sales slump during the traditionally peak festive seasons of Eid, Diwali, Christmas and Dubai Shopping Festival.

In the physical sector, dealers saw a surge in demand for gold bars from investors in Vietnam but holders in Indonesia and Thailand cashed in their bullion. Gold's rise scared off jewellers in Hong Kong and India, the world's largest consumer of gold jewellery. India's gold imports in January this year plummeted to just five tonnes from 62 tonnes in the same month a year ago as a surge in prices saps demand in the world's largest consumer.

In February, it was just three tonnes, reflecting the record slump in offtake, analysts said. The same trend is being felt in Dubai, home to one of the most vibrant gold jewellery markets and a main overseas shopping centre for Indian jewellery buyers.

While the attention lavished upon gold and other metals as well as other commodities by speculative funds has made for some spectacular headlines, the structural construct of the underlying market has been (not so slowly) shifting into a distorted phase which ought to be taken into account. Especially in light of the last six months' worth of developments. There could be a standoff developing between the consistent and traditional sector of demand (gold's largest) and the cyclical, fear & greed -driven safe-haven and speculative demand so much in evidence since September. Organizations charged with promoting gold demand across all channels must have their hands full and their marketing staff in a quandary. You sure can't please everyone.

Stay alert for the economic statistics and for Mr. B's musings. Other than that, keep the countdown to the 18th on the agenda and watch for the possible emergence of pivotal numbers in various markets.

Happy Trading.