Good Morning,

Bullion prices attempted to stabilize near $875 overnight, but the going was pretty tough in the wake of further dollar gains, slipping oil prices, and continued long liquidation among investors. Having breached the pivotal $885 support, gold appears poised to test lower - possibly much lower- in coming weeks and months. Targets extend anywhere from $845 to $800 (Elliot Wave-wise) near-term, and to possibly the low $700s (P&F chart-wise).

New York spot prices opened with a near-1% gain this morning, following the rout they experienced on Monday (and Friday, Thursday, etc.). A combination of bargain-hunters and some further abatement in scrap flows contributed to the bounce. Deceased feline bounce? Perhaps. A resumption of the 'moonshot?' Not quite. It appears gold failed its own 'stress test' recently. Probably on account of the fact that the Fed, the G-20, and the IMF passed theirs. As regards the banks, let's see the results this week. We see a mixed bag in the making. Profuse sweating, rapid heartbeats, and some clogged credit arteries will be on tap as the patients run on the treadmill. Beta-blockers are on tap and the pharmacy that the Fed and the Treasury represent for the financial sector.

Silver continued lower, losing a couple of pennies at the start - spot was quoted at $12.09 per ounce. Platinum gained $16 and repaired Monday's damage, while palladium climbed only $1 to open at $223 per ounce. For the moment, resistance is seen overhead near $895 and selling into that level was recommended by trading-oriented gurus such as Dennis Gartman. We will not turn neutral on the metal until and unless it takes out such layers of resistance overhead. As for the $1100-$1200 target, well, you tell us what kind of news such a pop might require. Seems they have already been published. Might we get those numbers fulfilled? Has risk gone from the system? Are those pointless questions? The real one is - how long (if achieved) will such conditions last? It could be measured in hours. That covers the short-term buyers/sellers.

But, what of the longer-term accumulators? Well, they might wish to get used to the idea that the 400-odd tonnes that will come out of the IMF's coffers will roughly correlate to a $100 discount against where bullion prices might otherwise find themselves over the next 24 to 36 months. The folks at Goldman call this a 'limited' impact. However, when coupled with the potential for additional tonnage coming onto the market from the gold ETF (and, come it will, in a down-phase) we could make a case for an additional $100 discount against where values might otherwise be found.

Thus, the $630 to $980 range we projected in late December could turn out to be a conservative one. As such, the far-horizon holders should welcome stability and a price orbit around equilibrium levels (now near $650, formerly near $425 for three decades). Let other assets do the volatile mambo, while gold anchors a portfolio and provides enhanced returns and lowered risk. That said, do not overload on a good thing. Even if you are still convinced that this whole crisis thing is going open the gates of Hades.

Now, for the good news. As values stabilize, and as the crisis clouds roll away, buyers -important buyers- will once again emerge in gold. Prosperity and tradition-motivated buyers. Indian savers, Chinese yuppies, Western designers and fabricators, and other similar takers. They will once again provide a counterbalance and a structural glue that will make for a healthier market.

Over to Barclays and a bit of blueprint analysis. Yes, we could also quote Merv Burak or Elliott Wave - but you can find those tea leaves in the Kitco commentary section. For now, let's have a look at the head-and-shoulder pattern and examine the price dandruff fallout from same. It is, at the moment, the number one concern for gold players. All other factors are on the 'keep warm' shelf. Courtesy, Bloomberg:

Gold may extend declines after failing to hold its break above $1,000/$1,040 an ounce, Barclays Capital said, citing trading patterns. Combined with the recently completed “head and shoulders” top, this suggests gold is likely to “head lower in range” in the near term, Jordan Kotick, New York-based global head of technical analysis at Barclays Capital, wrote in a note e-mailed today. A head and shoulders pattern is a peak, followed by a higher peak, then another peak. It forms after an uptrend and once completed, gold should move lower.

“We are disappointed by the move below $882, as this has alleviated the bullish potential we previously noted for the months ahead,” Kotick wrote. “Our preferred wave count suggests further corrective activity this quarter,” he added, referring to the Elliott Wave Theory. Gold for immediate delivery gained as much as 0.7 percent to $875.20 an ounce today, and traded at $874.70 at 9:14 a.m. in Singapore. The metal dropped to $865.49 yesterday, the lowest since Jan. 23, and 14 percent down from this year's high of $1,006.29 on Feb. 20.

“While capped by $900, the risk is for further weakness to a swing target near $845, or even a measured move at $805,” wrote Kotick. “In the bigger picture, we are holding onto our view of a move to $1,200, though this is now likely a story for the second half of 2009.”

We will certainly contribute a second-half projection of our own, come the end of June. In the interim, let the participants duke it out and the forces at work... do their work. Do not, repeat, do not let go of the core 10% under any circumstances short of Chapter 11. As GFMS put it this morning, the game is about capital preservation, not capital gain. It's what gold has been all about, all along, but was recently (two years at least) disregarded as a result of...something else that's ages-old: temptation.

That concludes this morning's sermonette.