Good Afternoon,

Some price strength continued to still be manifest in the bullion markets on the day following the release of the much-awaited US bank stress tests. Participants maintained a close focus on global equity markets, as has been the case for the past week or more. Whatever buoyancy came into the gold price today, was largely due fund plays related to the surge in crude oil and the pretty sizeable intra-day erosion of the US dollar.

The greenback fell to a six-week low (82.57 on the index) against the euro following the US employment figures released this morning. The dollar's safe-haven play was thereby undermined for the moment, as anxieties showed signs of easing. At any rate, since the US government has to sell about $2 T of debt this year, the bond market was showing signs of a bit of a choke on that bag of debt. The 4% bond yield for 3o-year Treasurys is not indicative of any inflation fears, just yet. Not for about three-to-five. Years.

Gold was seen bumping up against resistance levels near $920 on Friday, and it could not manage to penetrate back to the $926 area that it touched on Thursday. Book-squaring and mild profit-taking contributed to the late-hour decline. Gold, for its part, took the jobs data and read deflation into the equation. Once the absence of inflationary anticipation was removed from today's speculative formula of the day, the metal eased back towards $914 per ounce. Gold had been advancing largely on stock market shadow-play, rather than a flight to safe-havens. The broad $850/$950 price range remains in place.

New York spot market dealings were showing a $5.00 gain in gold, which was quoted at $915.00 per ounce at last check. This was a day for another substantial advance in oil (up $1.75 to $58.50 per barrel). Fund footprints in gold were as obvious as they were in the crude oil and copper pits, all week. The gold ETF however, has not seen a fresh inflow in bars since April 9th. Someone, somewhere, was buying something. The remaining question only has to do with their immediate price targets. Specs always have those in the program, you know.

Naturally, the perma-bulls have already opined that if it is not a global meltdown that will propel gold to its inflation-adjusted price targets, well, then it must be a global melt up, replete with mega-doses of inflation, that will do the trick. A no-lose / back up the truck honey buying proposition if ever there was one, in other words. Their words.

The melt up part might be correct, anyway. Gold's recent underperformance vis a vis industrial commodities suggests quite strongly that the recession has ended. That is, if crude oil sneaking back beyond $60 per barrel does not kill the root system feeding the ubiquitous 'green shoots' and turn them black.

We strongly maintain that inflation risk continues to be practically nil at the moment. One does not come out of a deflation of this size by immediately flipping over into a highly inflationary environment. Here, and now, at best, we might have an absence of deflation. But, as Ron Insana put it on Closing Bell today, we will be 'lucky to reflate. This, then, might just be the end of the End of the World' trade, but not the Beginning of Zimbabwe in the USA trade. In fact, in the Goldilocks zone that normally bridges a deflationary period to an eventually inflationary one, quite a bit of calm sailing can usually be achieved. And, as we have previously opined, inflation (of the House of Horrors kind) is not baked into the cake either. Not with housing starts under half a million, and not with car sales figures harking back to 1946.

Silver added 18 cents to once again nudge up against $14 an ounce. Platinum rose only $1 and palladium gained $2 to $1146 and $240 respectively. Automotive sector news continued on the dismal side, underscoring the speculative nature of the recent rally in the noble metals' complex. Toyota posted a larger-than-anticipated loss and a 22% drop in full-year revenues. GM was still panhandling (for another near $12 billion) in front of Capitol Hill, and Bridgestone had a flat (more like a blow-out) and fell into a loss $350 billion in QI.

Today's primary market focus was the jobs data. That non-farm payrolls have shrunk again, is not in question. What is in question, is that this report might well be the last one to show a loss of half million (or higher) monthly job losses, and that the graph appears to have bottomed with January's unmentionable figures. Again, the economy is 'less worse' than it has been up to now.

Although the what-if scenarios in the banking system tests amounted to nothing more than what bank regulators are supposed to do in the course of their normal tasks, the build-up and subsequent talking-head analysis avalanche suggest that this particular set of simulations was and is (still) being construed as a pass/fail exam for the dozen and half banks that represent an aggregate two-thirds of the US' system.

Mr. Geithner is being seen as a man whose visions of recovery in the US banking system entail no Japanese-style 'lost decade

(make that more like a quarter century). He sees US banks earning their way out of this mess. If he miscalculates, the system stands a realistic chance of falling back into the sewer in a couple of years.

As such, the stress test exam verdict is that the system has made it - and far better than it was estimated by doomsayers just a trimester ago. Under the assumption that an adverse set of conditions would persist for another year and a half, the US' 19 largest banks could lose $600 billion more.

As for capital needs, although none of the firms is be expected to permanently lease a permanent room at 'hotel Geithner' (as TARP has been called), the net number being talked about is near $75 billion. Good old BofA makes up about half of that number. The firm's boss, Mr. Lewis, was on the Squawk Box rotisserie this morning, delivering a thesis defense of the tests' findings and slowly turning a nice shade of 'done.' But, we will let his board determine that part.

The payroll data came in at 539,000 - or well below the consensus forecast of 610,000. The figure was the lowest one reported since last October, when 380,000 jobs were shed. Job gains were 72,000 in April. The US unemployment number now stands at 8.9% - a 26-year high. We will see how the Dow treats the job stress test numbers. Thus far, the dollar did not appear to welcome them very warmly. And, by Friday's close, neither did gold for that matter.

Now, over to silver. Another study, this one by Paribas, showing a surplus in the silver market. Calling all investors! Blue light special! Buy silver now and mop up this surplus, or....else.

The silver market is expected to develop a surplus of roughly 4,690 mt or 146 million oz in 2009, according to the latest Silver Market Focus by BNP Paribas. This will occur mainly because of a decline in industrial demand due to the global economic downturn, according to the report.

Historically, surpluses in the physical market appear to have had little discernible effect on shaping the direction of price, the report said. Yet, weakness in industrial demand in 2009 may come to play an influential role in price direction. A number of large consumers of silver in the advanced economies are expected to see extreme contractions in industrial production.

The weakness in off-take from this sector can lend to weaker price trends if there is a moderation in investment demand. The likelihood of this happening is greatest during the second and third quarters of this year when economic activity is expected to contract significantly, the report said. Noting that investment demand for silver rose strongly in Q1 -- notably as a cheaper, second-tier safe-haven asset compared with gold -- the report said that if gold prices were to come down from recent highs in Q2 as we expect, then silver's appeal to investors should equally decline, making the silver price direction more sensitive to weakness in industrial demand.

The report continued: Though we expect investment flows into silver to be an important source of demand over 2009, the silver price is expected to experience bouts of weakness, as the industrial component of demand suffers from the downturn in economic activity. As a result, any moderation of investment flows into silver could potentially lead to sharp corrections in price.

Silver prices have moved sharply higher since the beginning of this year, after declining steeply during the second half of last year. The Paribas report suggested that the rebound in the price of gold likely played a large part in spurring investor interest for silver, considered a cheaper alternative to gold.

Silver's correlation in daily returns to gold has recently reverted to its historical levels, after weakening during the financial crisis of last autumn, the report said. If gold prices were to weaken, and some risk appetite resumes (stimulated by recent positive surprise in the economic data), then silver is likely to follow suit. By the same token, if resumption toward higher levels of the correlation between gold and silver is maintained, we can expect this to be supportive of a recovery in silver prices in the second half of the year.

The report continued: We expect the gold price to move higher relative to a Q2 low, as seasonal demand for jewelry resumes and investor demand recovers on the back of higher liquidity and inflationary concerns. A recovery in industrial production late in the year under expansive monetary and fiscal policies, should support silver demand in industrial sectors and in jewelry.

Those of you in the Tri-State area, we warmly welcome you to the New York Hard Assets Show - at the Marriott Marquis on Times Square. Come see and touch a 400-ounce gold bar! Come see a live armed-guard! Come see a stunning new silver product debut! Come see our friendly Montreal staff! Come one, come all! It promises to be a very good show. Tim Wood and crew have produced what is sure to be one of the year's highlights in terms of financial shows. We look forward to seeing you there, Monday and Tuesday. Don't forget to stop by the Kitco booth.