Good Afternoon,

Gold prices vaulted higher again during the midweek session, as spec talk of gunning for the 1K level kept buyers at the helm. As such, bullion came to within about $12 of that number. Gold has now achieved and surpassed (by $8.40 thus far) the 'inside' top end we put forth in late December. Will it also take out the $1080 'circumstantial high' we proposed? Place your bets here. After you read the paper offered at the end of this commentary.

The seven-month high at near 988.50 was welcomed by many physical holders, but did attract a portion of them to the sales tables. A 1000 level was achieved elsewhere in gold - in tonnage terms, by the gold ETF. The gorilla in the gold market room is taking on...gorilla-sized proportions, making the average 800-pound one seem like a gnat.

New York gold trading was off to the races in the latter part of the afternoon, with prices pushing higher as fresh trend-followers piled in. The nearly $9 decline of the morning was obviously not seen as a deal-breaker, as options expiry approaches next week, and anxiety levels around the world show very little in terms of abating. Maybe when spring springs hope, conditions will be regarded as less Armageddon-ish.

Silver prices climbed 25 cents to $14.36 and platinum rose $11 to $1098 per ounce. Palladium was quoted at $218, up $2. US carmakers are begging for another 36-40 billion and GM at least, is shedding brands faster than it burns through its original stack of doled out taxpayer money. Saab, Saturn, and Pontiac will soon be brands you will reminisce about, rather than drive.

The World Gold Council's (creator of the aforementioned vehicle) tracking statistics indicate that identifiable investment demand during the fourth quarter of last year amounted to 304 tonnes, excluding ETF-related offtake. In so many words, global investors showed an appetite of about 2.6 million ounces per month more in the final stretch of 2008 than was seen during the same period in 2007. Little surprise then, that some mints around the world -accustomed to selling an average of about 300,000 ounces of bullion in round form on an annual basis for quite some time- were stressed out and encountered production and shipping delays. Let's delve into the subject matter at hand: it sure seems to obsess a lot of hard money pundits - and their readers.

Fact: The US Mint ended up selling 860,500 ounces to investors last year, and of that figure, 413,000 ounces were sold in the last quarter of 2008. While the more than 24 tonne 2008 figure is certainly impressive, consider a few other numbers for perspective of the proper kind, especially when reading about 'unprecedented' demand in many a newsletter.

Fact: For example, in just one month (Nov. 1986) the Mint sold 626,000 + ounces to investors. That year's total was nearly 1.8 million ounces - and it was sold in just three months. Let's chalk that anomaly up to the frenzy surrounding the coins' debuts. However, during the following epic year of market crisis (1987) the Mint sold 1,253,000 ounces to coin buyers. In 1998, almost one million more ounces of gold were moved by the Mint as compared to 2008's total.

Fact: As the world of gold bugs was preparing for the End of Days (Y2K) in 1999, more than 2 million ounces were sold by the Mint. Conclusions? Draw your own, but we see a developing pattern of crisis anticipation and mania buying, followed by a return to more normal levels for the remainder of the time. Kind of like a...cycle, you know? Angst followed by calm, followed by complacency, followed by new angst. Disbelievers can simply click on:

MailScanner has detected a possible fraud attempt from claiming to be

and learn the facts for themselves. Others, can continue to place faith in dealer hype, E-bay, and the quasi-Biblical tone of the subscriptions they receive from gold 'gurus.' There is always a choice.

Of course, the caution flags we raised yesterday were swiftly fired at as 'anti-gold propaganda.' Well, there is a choice to be made in that interpretation as well. The first condition however, is to accept the fact that this writer has never abdicated the firm conviction that you must hold a life insurance policy for your basket of wealth. Perhaps 10 or 15 percent is tantamount to being 'anti-gold' to you, but that is your take on matters.

However, when it comes to The Globe and Mail's Alan Robinson, after this morning's piece on gold, he will surely become the next target of conspiracy club hate-mail, and will either be vying to wrest the Moron of the Year award from your truly, or be labeled as an MSMer. Which, he is. But, your choice is to accept 'news' dispatches from little more than goldbug forums as 'the truth.' Take it away, Alan:

The price of gold has soared as investors seek a refuge from market turmoil, but one analyst says anyone betting on a U.S. recovery would do well to take some profits in the precious metal.

We think the sun will shine again and we think the tremendous and unprecedented stimulus that is coming from all over the place will stabilize the U.S. economy, said Vincent Delisle, a strategist with Scotia Capital Inc.

Gold rose 2.7 per cent yesterday, reaching a seven-month high before ending the day up $25.30 (U.S.) an ounce to $967.50. It peaked yesterday at $974.20. As recently as mid-January, gold traded at $806 an ounce. Gold is breaking all of the rules that work in normal times. Typically, the metal weakens when the U.S. dollar is strong, but yesterday both rose sharply. It also tends to move in sync with the price of oil, but this year gold has been climbing higher while oil weakens.

The historical correlation between gold and West Texas intermediate crude is a positive 81 per cent, compared with the negative 53 per cent since the beginning of 2009, he said. The risk of inflation that normally sparks gold buying is pretty much absent.

These relationships have broken down in the past few weeks and these are anything but normal times, Mr. Delisle said. And that might not be good for gold, which has taken on the role of safe refuge in times of turmoil along with the U.S. dollar, the Japanese yen and U.S. Treasuries. The S&P/TSX global gold index has been strong during the past few years and this year the index has performed well. The gold miners now account for a record high of 12.5 per cent of the S&P/TSX, and Scotia Capital, which has been overweight the group, now recommends a 10-per-cent holding.

Over the past 30 years, gold stocks have accounted for about 7 per cent of the value of the S&P/TSX.

If you want to buy low and sell high, you need to be a bit of a contrarian, Mr. Delisle said. This is really a tactical move on our part. We think the market is exaggerating the pessimism.

Gold, in terms of weaker currencies such as the euro, British pound and Canadian dollar, is at a record high, said Bob Tebbutt, vice-president of corporate risk management for Peregrine Financial Group Canada Inc. Using Canadian dollars, gold traded at $1,207 an ounce yesterday.

I guess what you have to say, is gold is finally performing as it should perform in times of uncertainty, Mr. Tebbutt said. Finally, you are seeing a move to the upside, but it hasn't set a record in U.S.-dollar terms.

Gold traded at a record $1,014.60 (U.S.) an ounce in March, 2008. However, a look at the S&P/TSX shows the gold mining companies have recently shown some signs of fatigue. The S&P/TSX gold index jumped 4.6 per cent yesterday and it is up 18.1 per cent during the past month, but only 10 per cent so far this year. The index rose almost 1 per cent in 2008, but that performance was relatively good compared with the 35-per-cent plunge in the S&P/TSX composite index. During the past three and five years, the gold index is up 26.9 and 59.2 per cent, respectively.

When we look at the broken correlations, we think the reversion [back to the mean] will hurt the relative performance of gold, Mr. Delisle said. One has to wonder how much more 'market share' gold can gain if the sun ever comes up.

Call it whatever you like, but facts, figures, and history bear out some familiar patterns: make too much of one thing and conventional wisdom takes a backseat to unconventional behavior. One cannot figure out human actions and better than the potential actions of the Big Ape in the room. One of the things that is really being made much of these days, is inflation. Not just plain-vanilla type price increases, but mammoth - Weimar Republic flavoured- wheelbarrow inflation.

Such a purchasing power-eroding outcome is seen as the inevitable outcome of today's 'reckless printing' etc., etc. Two things on the subject at hand. One, the full story on the Fed, inflation targets, Mr. Bernanke, and the media. Marketwatch's Rex Nutting brings us the other story of the day (the first one being gold's new achievement):

The extraordinary measures taken by the Federal Reserve to restore the flow of credit vital to the U.S. economy won't stoke inflation, Fed Chairman Ben Bernanke said Wednesday. In a rare appearance before journalists at the National Press Club, Bernanke said the Fed will be able to quickly reverse much of what it's done to expand credit, once the economy improves. Read his full remarks.

A significant shrinking of the balance sheet can be accomplished relatively quickly, Bernanke said.

Many of the programs are designed to automatically disappear once market conditions improve, he said, while others will require more active intervention by the Fed. 'At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time.'

Bernanke emphasized that restoring the economy to vigor is the Fed's one and only job now, and that concerns about inflation must wait.

For now, deflation ranks as a greater concern.

At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time, Bernanke said.

The Fed has expanded its balance sheet by more than $1 trillion by lending money to banks, foreign central banks, and more directly to businesses through its commercial-paper lending program.

Extraordinary times call for extraordinary measures, he said.

The result has been an expansion of the nation's money supply. Some critics say will ultimately stoke inflation, Bernanke acknowledged.

But the Fed chief said that most of that money is sitting idle, on deposit with the Fed or in federally insured bank accounts. Indeed, he said the U.S. central bank expects growth in the M2 measure of money supply to slow considerably this year.

For nearly a year, the Fed's come under intense criticism and legal challenge for withholding information about the assets it has taken on from the rescue of American International Group and the fire-sale of Bear Stearns assets. Bernanke sidestepped those complaints in his talk, but he did announce two new efforts to increase Fed transparency and accountability.

The Fed will unveil a new Web site with more details and analysis of its public information pending a thorough review of the Fed's secrecy policies, he said.

But more importantly, the Fed will take a step closer to his ideal of inflation-targeting by publishing the policy-setting Federal Open Market Committee's long-term economic projections.

The FOMC's projection of inflation over the next five years, he said, may be interpreted ... as the rate of inflation that FOMC participants see as most consistent with price stability and maximum employment.

The first projections will be published later Wednesday with the release of the minutes from the FOMC's January meeting, he said.

The other thing is, that if simply you write me an e-mail (that contains no expletives), I will send you a freebie white paper that contains the distilled wisdom of a well-known research house. The topic? Why inflation (and some other outcomes) is not the must-have consequence of today's conditions, and why some goldbug myths are ill-founded.

Happy Trading.