Someone forgot to send a "dollar is way up" memo to the gold trading pits this morning; the yellow metal was up by $10, (at $1,671 on the open) aiming for a demolition of the recent $1,675.00 record, despite a heftier than hefty rise in the greenback (what's wrong with this picture? Everything)following central bank interventions this week. Contrarian sign of the times: JP Morgan wants you to stay long commodities, with gold their "top pick." Now, be fair: you know how that headline would have been treated in certain circles not many months ago. Now, it will be added to the string of 'validations' being trotted out to induce the small retail investor to buy more of the metal at, or near record levels.

321 Gold's Founder, Bob Moriarty recently offered this passage of timeless wisdom to his many readers: "People buying gold at $252 in 1999 were paying the lowest real price for gold in a century. They were investors. People buying silver at $4 in late 2001 were buying at the lowest real price in 5000 years. They were investors. You can almost never get hurt buying at record lows when the price of a commodity is below the cost of production.

 Speculators on the other hand get smacked on a real regular basis. They depend on more and more people coming into the market. They are speculating on future prices. Regardless of what you think about the future of the US dollar, $1637 gold isn't a record low and you are not an investor by buying at that price. You are a speculator only. You can view gold as a form of money; it has some ... features of money as does silver.

Bob adds that: "Gold and silver are assets. But gold and silver are not wealth. Wealth is some productive asset that provides a real after tax return." None of this means that Bob (or this writer) want you to be without the core, essential protection that gold has always offered and probably always will; it's just the "investment" approach and portfolio weighting that is being brought into question here when such prices are crawling across the boards as now.

Yesterday we brought you the news that (some) gold miners have apparently begun to actually hedge production after a long spell of doing the opposite and helping prices achieve sizeable gains in the process. Not long after we drew attention to the topic, ran a story titled "Forward Sales Suggest Fears Prices May Fall" in which it cited several producers whose activity is tilting towards protective strategies.

Virtual Metals' consultant Carl Firman goes one step further and cautions that "if gold miners, seeing the price reaching this far, are tempted to lock in prices, it would exaggerate a move downward in the gold price." -this, notwithstanding the fact that most of the Q1 hedging activities in question were related to the securing of financing for certain expansion projects. At the end of the day, it is the small remaining amount of gold on the global hedge book (150 or so tonnes) that matters as we go to speak.

The last time that the US dollar leaped by nearly 1.10 on the trade weighted index in a matter of minutes was...well, it is difficult to summon up that memory. A "Thank you, Bank of Japan" card will be on Mr. Geithner's to-do list later today. Enough was enough for the BoJ and it set out to sell the stuffing out of the yen (and buy dollars in a big way) overnight as it also pledged to give the Japanese economy a ten trillion yen adrenaline injection to come.

The BoJ followed the Swiss National Bank in acting to curb currency gains of the unwelcome kind this week. Both official institutions must be grumbling at having to have done this and are probably uttering certain (for now silent) expletives in the direction of Washington which they (partially at least) see as responsible for the developments that forced them to act in this overt manner. For certain countries however, there appears to be no alternative to intervention; not if they are heavily export-oriented ones.

Another central bank that is also a busy bee today is the ECB. Its head, Mr. Trichet, is expected to spend his news conference today mainly shielding himself from having to answer tough questions related to the renewed global market turmoil and to the European situation in particular. His team of policymakers meets today to discuss the potential resumption of eurozone government bonds in an effort to curb the spreading of the debt contagion over to Italy and to Spain. Bettors are wagering no 'bake-in' rate hike announcement by Mr. Trichet at this juncture, tough anti-inflation rhetoric notwithstanding.

The latter country did manage to pass a relatively tough debt test today as it auctioned nearly $5 billion worth of bonds; but, it had to do so at...a price. That "price" was the highest yield (4.8 and 4.9%) for said (2014 and 2015-dated) bonds since the birth of the common currency more than a decade ago. Demand for the obligations was termed as "decent." The yields, on the other hand, appear "indecent" but, hey, what a (certain PIIGS) country to do if it wants to sell that paper? Pay up, that's what.

Finally, let's look over to the US Fed and to the US economy. Of late, this requires a dose of averted vision as the scene is not pretty. The stock market is apparently pricing in a recession in the making if its latest behavior is to be taken at face value. The string of bad/ugly data available to parse is growing and making most everyone nervous. Everything from the ISM services and manufacturing indices to the announced job cuts to consumer spending to the US GDP indicates that the country experienced the poorest six-month conditions economically speaking since the Great Recession ended in Q2 of 2009.

Perhaps the whiff of recession added to the problems that the rest of the precious (and base) metals' complex experienced this morning, JP Morgan's pro-commodity declaration notwithstanding. Silver dropped a dime to open at $41.63 (albeit it is still possibly poised to touch the high $43s in coming sessions) while platinum and palladium shed a lot more additional value this morning. The former declined $33 to the $1,746.00 per ounce mark, while the latter slid $11 to $783.00 per ounce. Background news for the noble group was actually supportive, with strike negotiations still in progress in South Africa and with GM reporting "solid" improvement in its 2011 adjusted earnings as well as quarterly profits.

This morning's jobs report showed a decline of 1,000 (to the even 400.000 mark) initial unemployment claims filings, a climb in the continuing claims on the order of 10,000 (to 3.73 million) and a drop of 6,750 (to 407,750) in the four-week rolling average of claims for benefits. None of the above had much of an initial impact on the dollar, or bullion as of 8:30 New York time. Tomorrow's Labor Department report is what participants appear to be really focusing in on.

Rhodium started today's session at $1,975.00 per ounce and one may be excused for being tempted to yawn when mentioning its recent price patterns. However, dull as things may appear, the Globe and Mail finds the noble metal reasonably...attractive; and not just in an aesthetic sense. The G&M notes that: "Right now, rhodium has bullish demand and supply trends, making for an intriguing investment case. And for the first time, it's relatively easy to play the wild swings in the metal. A new exchange-listed vehicle for rhodium began trading in London in late May, while some precious metals dealers have recently started to make it as easy to buy rhodium as gold and silver, its flashier cousins."

Precisely the point: where does one see the next 30 or 50 percent gain as possibly taking place next? In gold from the $1,700 mark? In silver at $41? Or, could it be rhodium, or palladium -both of which are enjoying significantly better fundamentals at the moment? Of course, one has to go along with the JP Morgan memo that sees commodities outmaneuvering the possible global temporary slowdown. Come on now, you cannot have it both ways with the JPM memo. It's either good, or it's...good.

Until tomorrow,

Jon Nadler Senior Metals Analyst 
Kitco Metals Inc. North America
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