Good Morning,

Chinese economic growth slowed to record 'only' a 10.3% pace in Q2 (from a torrid 11.9% rate reported in the corresponding quarter of 2009) as the Beijing government's efforts to contain things from boiling over appeared to take hold. Meanwhile, inflation in the country rose by 2.9% last month, following a 3.1% reported growth rate for May.

All of this possibly means that authorities may not need to apply the fiscal and monetary brakes quite as soon and/or as aggressively as first anticipated. In any case, analysts at Citigroup foresee single-digit growth rates for China in coming quarters, and for at least a period of one year. Whether this is to be considered just a much needed 'soft-landing' or the start of a more serious contraction in growth rates, remains to be determined. Over in the US, the Fed determined that the 'Great Deleveraging' might take as long as three or four more years, and bring with it more of the same; high joblessness, high risk of deflation, and continuing low interest rates. As well, the Fed is unable to see any, or hardly any (1% or at worst under 2%) inflation down the road to 2014.

At least, that's the upshot of parsing through the FOMC's meeting minutes that were released yesterday. In those minutes, the Fed is seen as allowing for the possibility of a worsening in the outlook for the US economy and deliberating what to do if such conditions arise (especially now that it is essentially out of stimulus ammo with which to defibrillate a possible episode of US economic arrhythmia). Thus, as far as the 'extended period' language goes, the Fed may or may not apply it to key interest rates between now and a year from now, but it seems quite likely to couple those words with 'economic weakness' as it describes the state of affairs in the US going forward.

Gold opened with a $6 gain in New York this morning, quoted at $1214.50 per ounce as against a 0.40 decline in the US dollar on the index. The euro advanced to 1.28 against the greenback and gave further credence to the perception that the gold-dollar coupling may have come to an end recently. Europe (stocks and the currency) got a boost this morning as Spain was the next country to successfully sell bonds at auction this morning and as Greece announced that Piraeus Bank will buy a stake in two other domestic lenders.

Silver added 14 cents to open at $18.42 the ounce, while platinum and palladium recorded modest gains, with the former starting off at $1525.00 and the latter opening at $466.00 the ounce. Rhodium was lower by another $30, quoted at $2350.00 per troy ounce. Technicals in gold point to a possible rally up into the $1220s but much more than that is needed to restore the fully bullish footing lost in the recent declines in the metal.

As for the noble metals, to underscore just how important the automotive applications sector is to this group, read no further than the introduction to the White Book recently released by ABN-Amro/VM Group. In it, analyst Jessica Cross describes the situation as follows:

Last year, autocatalyst demand for platinum represented almost 54% of the metal's total offtake. The situation for palladium is even more extreme, as almost 57% of all demand came from the road transport industry. The position that rhodium finds itself in hardly bears thinking about, as almost all the demand for

rhodium is destined for exhaust emissions' control. Delve into these markets without a sound understanding of where the autocatalysis market is headed is at your own peril.

We will bring you more from the White Book but do note that platinum ETF holdings show a decline since having peaked roughly around the middle of March...

Meanwhile, two firms putting forth near-to-medium term gold forecasts diverged in their projections for the yellow metal. Goldman Sachs raised its six-month target for gold to $1290 from $1275, while banking giant UBS cut its 30-day forecast to $1230 from $1300 per ounce. We remain at the 'unchanged' mark for our own six-month projections; the potential trading range for gold is still seen as $880 to $1280. Wide, yes, but nowhere as wide as what you are about to read.

Commentator Lorimer Wilson informs his audience that no less than 40 names are on the bandwagon, signed up for gold between $2000 and $15,000 (complete with reach-by dates attached, in half the cases!) in a case of unanimity not seen since the dot-com or real estate bingo days. A case of harmony that the even the Swingle Singers could envy. Too bad the figures did not include the 'why' and the 'how' factors or related guesses or opinions (since that is all that the gold price promises really are) for the Dow, the dollar, the value of an average home, the US violent crimes statistics for those particular years, etc.

US June producer prices fell by 0.5% and food prices fell 2.2% (the most in eight years!) while energy costs declined 0.5% as well. The best leading barometer of inflation, core producer prices. Dropped 0.4% -the largest such decline since Q2 of 2009. One can see why the Fed is fretting about the economy skirting the D word...Meanwhile jobless claims also fell last week (by 29,000 filings) to 429,000 - the lowest such level since August of 2008.

There is still a ways to go, as the 'ideal' figure that would imply better hiring conditions would need to decline to under 400K first. However, the trend will give the Dow futures something to mull over before the market opens. Gold fluctuated -and then some- after the data release. It first shrank the daily gain to $2 then surged to post an $8 gain by 9 am this morning.

And the beat goes on....along with the monsoon, China, the dollar, the euro (no longer good for nothing), and the funds that keep throwing money at the market wall hoping that something sticks...

Happy Trading.

Jon Nadler Senior Analyst, Kitco Metals Inc.North America US & Canada Toll Free: 1 (877) 839-8036 Websites: www.kitco.com and www.kitco.cn

Blog: http://www.kitco.com/ind/index.html#nadler