Good Morning,

Price supports that had previously held during gold sell-offs in recent months gave way early on Monday in overseas markets. Shortly after last night's start of the spot value ticker, prices eroded and did so quite swiftly. A breach of support at $880 gave was to additional selling and gold fell as low as $874 per ounce. The metal thus found itself at a two-and-a-half month low, as the premium placed upon it during the early part of 2009 by safe-haven motive-driven buyers cracked and peeled off, dollar by dollar. None of this stopped denials of reality from boiling over in the perma-bull camp. Doomsday must happen, now that the machinery has been set into motion. Never mind the G-20 or any other G's (gov't. bailouts, generous 'printing' or grumpy populists).

That this (decline) is no longer about the psychological impact of the IMF sales topic, is becoming clear. That this (return to more moderate values) is more about the shifting of the tectonic plates which have had the credit and economic lands of the planet locked since 2007, is also becoming clear. The fallout of the G-20 meeting -one at which the US took the reins firmly- is being measured in terms of degrees of optimism. Quite a switch from the 'more of the same' syndrome that had greeted every previous attempt by officialdom to meet and talk. Credit appears to be due to Mr. Obama for several of these rising degrees of hope.

Gold, at the new price equation, found buyers in {gasp!) India for a change. Yes, the previously hibernating species of buyer reluctantus emerged and scooped up some gold, with but 22 days to go before it becomes a 'must' to do so. Scrap flows eased up as well, and these two incipient phenomena could put a possible floor under bullion near $845. Looks like the zealots who derided India for no longer making a difference to the gold market might have to find a new tune, and a new drawing board. On the problematic side of things, the cessation of accumulative behavior in the gold ETF.

New York gold dealings opened the fresh week with fresh losses, driven lower by sellers who witnessed its lack of reaction to Mr. Kim's missile launch, and by others who see additional gold making its way onto the markets from the IMF's and others' official coffers. A weaker dollar and yen failed to lift the metal as the currencies fell due to the same diminishing of safe-haven accumulation patterns and a quest for greener (read: riskier but more rewarding) financial pastures. If gold did react to something early on Monday, it was perhaps the significant and on-going decline in German retail sales and producer prices.

Spot prices fell $17 in gold, to open near $877 and the market's tilt-meter appears pretty firmly leaning towards the supports that might hopefully emerge in the mid $800's. Hyper-bull gold forum chatter had declared that we might 'never see $890 again' over the weekend. Such prognostications could take on a whole new meaning this morning. Silver lost 30 cents out of the starting gate today, quoted at $12.45 per ounce. Platinum fell $6 on lack of fresh news. SAAB was given a bit of additional time to get its de facto bankrupt act together. No other sector news was seen on the wires. Palladium rose $3 to $222, bucking the selling trend in the complex.

No, we will not be beating the IMF horse any more this morning. Tomes have already been written as to the possible outcomes of such sales. This is one tired horse. Let's instead focus on one of another color: that of deflation. It is, still, the lead horse in this equation. To see anything else in the urgency present at the G-20 table, is to misread the overriding worry of the participants. The Wall Street Journal relays the Fed-issued warnings as follows:

Federal Reserve Vice Chairman Donald Kohn offered a sobering assessment of the economic landscape and warned in starker terms than he has before about the risk of deflation -- a widespread drop in consumer prices that can sap the economy's strength.

Many financial markets remain under considerable stress, Mr. Kohn said in comments at the College of Wooster in Ohio, his alma mater, noting that the value of assets -- such as stocks and homes -- has fallen and credit is still tight for firms and households. These conditions are not conducive to a substantial and sustained economic rebound.

The Fed has already lowered interest rates to near zero and in recent months has tried other approaches to repairing financial markets by aggressively expanding its lending and asset-purchase programs. Mr. Kohn expressed worry that with the Fed's benchmark interest rate already about as low as it can go, further declines in inflation could push up the real cost of borrowing, which is borrowing adjusted for inflation. That, in turn, could further weaken the economy.

If such a process continued for some time, we could fall into deflation, much as Japan did for a time in the 1990s and earlier this decade, he warned. The Fed is combating that risk by ramping up its purchases of securities and loans to needy firms, an act that ultimately could have the opposite effect -- causing inflation. Both Mr. Kohn and Fed Chairman Ben Bernanke, speaking separately in North Carolina, addressed the need for the Fed to pull back its special lending programs once the economy gets back on its feet. To finance its asset purchases, the Fed has effectively been printing money which shows up in the financial system as reserves that banks keep on deposit with the Fed.

The large volume of reserve balances must be monitored carefully, Mr. Bernanke said. If not carefully managed, he said, the cash sloshing around the financial system could make it harder for the Fed to raise interest rates down the road when the economy starts a convincing recovery.

A week to watch the US banks' stress test results, the post-communique actions of the G-20, and the attempted rebalancing of the gold market's essential pillars of supply and demand. Would not hold any breaths over that last one. Emotion rules for the moment. It is not emotion that a $1 billion sale should engender. But, you know the story: when a market disregards positive news and amplifies each negative one, its mindset is fairly obvious. To all but manipulation scientologists.