Good Morning,

The week's hot gold rally kept its running shoes on overnight and built on gains prior to this morning's NY opening. Gold maintained its pace within the $950-960 zone as the dollar rolled further downward, nearing 80 on the index, and as crude oil hovered above $61 per barrel. As with other markets, now that the $60 level has been breached, we hear brave talk about $75 per barrel - why not? You already know why. Turn the calendar to 2008 for a minute. Greed learns no lessons. Ever.

There was also a palpable sense on Thursday, that the stock markets may yet be in for a sizeable correction, following the anti-gravity shoe-infused bounce they have enjoyed since March. While March's lows may have indeed been the bottom for a very long time to come, the mass euphoria that became manifest in those markets could be tempered (and probably should be) by less than appetizing news from the bean counters in the economic departments of various governments around the world. Not everyone is fearful of such a pullback, however. Anothermarket guru, Laszlo Birinyi, went on Bloomberg to opine that he is confident we're in a bull market and that he sees the S&P (500 -that is) going up 88 (eighty-eight!) percent in 24 to 36 months' time.

Another day of travel kept us from adding an evening comment to the daily list on Thursday. This was most frustrating, as gold finally made it to the potential breakout zone above $950 an ounce, and as much dollar talk permeated the airwaves. Thus, we will just have to chime in this morning, on at least theperceived catalysts for such moves.

Yesterday's action in many markets was largely defined by the possibility (!) that Britain might lose its AAA S&P rating. However, this was gold's third weekly advance, and it was an advance that came in the face of adverse news from the fundamental front. In the opinion of NS Futures Chicago, they may be looking beyond conventional recovery/inflation type of topics. It's just that no one knows what they are looking at. We soon might learn.

Never mind that such a downgrade (and an actual one) should have been carried out months ago, not now, when the country is halfway out of Sherwood Forest. In that sense, the S&P 'warning' is about as meaningful and ahead of the curve as Dick Cheney's mumblings about the US' safetyand its 'enhanced interrogation techniques' being effective. But, hey, it was certainly cannon fodder for an emotionally-charged market day. Speculators started frothing at the mouth and immediately lumpedthe US and who knows what else into the 'worthless' credit pile (as if AAa were as tainted as bad pork). More on this topic, below.

Warning! There was even inflation talk leaking out of the marble halls yesterday. No, not Zimbabwe-on-the-Potomac kind of inflation. Not even Whip Inflation Now! style inflation. But more than the current circa 1% inflation kind of inflation. Mr. Plosser-of-the-Fed said he sees inflation near 1.2% in 2009 and 2.5% by 2011, and said these predictions take into account steps the Fed will take to curb inflation. But, Mr. Plossersaid the Fed could still do more to keep inflation expectations low, repeating his idea that the Fed should set a specific inflation target ( thought to be 2%). That being the case where does one begin to account for a commodity complex rally that has gotten way ahead of itself? In the psyche and adrenaline rush of speculators, that's where.

Friday's opening action saw gold in full stride, rising $4 and apparently marching towards $960 per ounce (now at $957.80 bid basis spot) after a week which could be summed up as being a virtual (albeit slo-mo spread out over four days) replay of the mid- March the Fed will buy back anything and everything rally. Silver showed a 21-cent gain on the open, trading at $14.76 per ounce. Platinum rose $3 to $1152 and palladium climbed $2 to $233 an ounce. Too early to say where the day's path will take us. We do know that there will be no action on Monday however. Now it becomes a question of who wants to go home with fat profits in the 'booked' category and who does not dare let go of long positions in the event this is 'it.'

Yes, the marketsare overbought. Yes, book-squaring prior to the Memorial Day weekend is upon us. Neither may matter, as the longs have been pumping prices higher despite adverse macro conditions. Support has now risen to above $935 for the short-term. Putative price suppressors must have been on early summer holidays this week. Forum chatter is at a fever-pitch and is as loud as it can be utterly mute on a day of falling prices. But, hey, nothing new there. Radical Extremist Gold Bugs admit to the existence of only one type of gold market: the up, up, and away to da moon - type.

By the same token, the crowd that ironically haspractically everything it owns in dollar-denominated assets, is -at this time- pouncing on the greenback and is once again calling for the plug to be pulled on this ostensibly terminal case of a paper currency. Such was evident in yesterday's UK-instigated deluge of dollar-oriented comments. Seeking Alpha brings us a quick snapshot of the sloganeering. It finds none other than Bill Gross at the summit, red flag inhand:

US Equity and Bond investors had a tough day yesterday. The reason? According to most pundits, the proximate cause was the S&P downgrade of UK debt. Many observers decided that the US might be next. Bill Gross of PIMCO weighed in with this zinger:

The United States will face a downgrade in at least three to four years, if that, but the market will recognize the problems before the rating services -- just like it did today, Gross told Reuters.

Comments on Gross's comments? Plenty:

Enter Bill Gross, always eager to talk his position. He stokes the fire by saying that the Treasury market is selling off due to ratings fears. Maybe. Indeed, I've heard that Asia is selling today. But always remember, when Bill Gross talks, he is always always always talking from position. So I'm assuming Gross is short Treasuries and today is adding.

No one outside PIMCO knows their position, but Gross is a savvy guy, so he is not speaking to hurt his own fund.

Jon C. Ogg points out that none of this is new information. Writing in his article, Did Bill Gross Short Sell Stocks & Bonds Via U.S. AAA Rating Comments?, he notes the following:

It is easy to add panic to the fire when you get an actual downgrade as we saw today from S&P on the U.K. Technically, that is just a bias downgrade, but that is still enough. The notion that someone with the clout of Bill Gross bringing this risk to light is troubling for investors who have been preparing for the next wave of the economy and credit to be better rather than worse.

There is an exquisite irony in worrying about the S&P downgrade. This is a company vilified by nearly everyone for the failure to recognize the subprime risk, lamely giving AAA ratings to assets now viewed as toxic waste. All of a sudden, we are viewing these guys as the brilliant analysts who know the potential for nations to pay back debt. Really?

There is a serious public policy issue about government bailouts and the debt required. It is a matter of discussion among many serious economists. We do not pretend to offer an answer--not yet. On our site we are (informed) consumers of such information. While we are still evaluating the arguments, we can state a preliminary conclusion: The S&P ratings will not be our first choice.

Talking one's book. How...novel.