Good Afternoon,

Gold prices turned a 2% overnight loss into a 2% daytime gain on Thursday. After having reached a low of $870.90 in the wee hours, the metal recaptured the $900 mark with relative ease, as swooning equity markets and more bank-related jitters sent buyers its way. Bullion vaulted above the $900 level once again, as the US measures to stimulate the economy were perceived as yielding inflation down the road, and as jobless and home sales numbers aggravated the angst among investors everywhere.

Spot gold recovered from its early morning losses and was seen trading at $908 in the afternoon electronic session, showing a healthy gain of just over $20 per ounce. Evidently, the price suppression teams must have been busy smothering stocks today, since they allowed gold to rise once again...Silver also executed a sharp u-turn, turning a 7 cent loss into a 37-cent gain which brought it up to the $12.32 per ounce level this afternoon. Platinum reflected a similar pattern, but its $17 gain to $966 was apparently tied more to inflationary fears on the proposed Treasury plan to buy long-term Treasuries, rather than any bright news from the automotive front. The Perth Mint launched a range of new platinum coins which highlight Australia's wildlife, Aboriginal culture and enduring landscapes ( ).

Economic malaise continues to batter the world, as evidence of corporate losses pours into a statistical database that has hardly ever looked worse. Ford lost nearly $6 billion last quarter, dropping an F-bomb upon its hapless shareholders that was louder that that of Serena Williams' at the Aussie Open. Sony's profits fell by 95%, Toshiba and NEC await losses for their fiscal year, Starbucks closed 300 more stores (who noticed?), Royal Dutch Shell lost $2.8 billion, Jet Blue sang the loss blues, the Russian ruble turned to rubble, and the comma key on our laptop just fell off. The Dow fell off (a cliff) as well, giving up 226 points in the wake of the bad data.

The single most significant warning and acknowledgement of the nature and trend of the crisis that has gripped the world for at least a year, emerged from the Fed yesterday. Not mincing any words, the US central bank expressed alarm at the worldwide economic swoon and placed the prospects of deflation squarely in the middle of the table of possibilities. Today's continuing jobless claims figures hit 4.78 million - a record in that grim book that was started in 1967. Durable goods orders fell 2.6% last month, showing swooning demand for everything but weapons. 

That same table has thus far seen the words slowdown and recession as well as disinflation being used to describe that which we will now label as decession. The bottom line here is, that one might as well forget about stagflation and most certainly about hyperinflation - let's leave those equally unpleasant words out of the equation until at least the next decade - and even then, they are not likely to make the Fed's worry list.

With a 244 to 188 vote, the House passed President Obama's $819 billion economic revival package and it did so without any Republican support. Speaker Pelosi was not surprised by the lack of same, and indicated that some of the provisions offered by those who abstained were the very types of policies that gave rise to the crisis in the first place.

On a day when gold appeared to want to head into two directions at once - and did so within the span of a few hours, let us take a look at the price chart of the metal through the 'half-empty / half-full' glass prism and see what results. Minyanville's Kevin Depew finds that:

Gold is always an emotional battleground. But take a look at the two weekly price charts below... without emotion I mean.

The first one shows a qualified downside break for gold (according to DeMark price exhaustion). The rally since the qualified break has been muted, and gold is clearly struggling on the upside.

Looking at the dashed green upside TD Setup Trend line, gold could easily make a run back toward that line, but this is a very weak price pattern by any standard, and certainly by the standards of DeMark price exhaustion techniques applied.

Now, take a look at this price chart of gold. What a difference. First, the downside line (red dashed) was not qualified, meaning the support there is intact. Second, there is an as-yet-to-be-qualified break above the TD Setup Trend (dashed green) that could be qualified very soon. This is a much stronger and healthier pattern and I would be very reluctant to stand in front of this potential weekly upside break.

So, what's the difference in these two charts? The first is gold priced in US dollars. The second is gold priced in euros. The bottom line here is that gold bulls could potentially win the battle... but lose the war... if they ignore the underlying strength of the dollar.

About eight days ago, Swiss National Bank Second Banana Mr. P. Hildebrand alluded to currency market intervention as a plausible tool in fighting the crisis. Kevin Depew feels that Mr. H's comments were in effect a blueprint of prompts being laid out for the US Fed and especially the US Treasury. Then, as recently as last week, we heard the word manipulation being used to refer to the Chinese yuan. By none other than Treasury Secretary Geithner. Them's evidently, fightin' words!

Kevin explains further:

The term manipulator relative to currency is a serious one and not just one more piece of hot campaign rhetoric. Currency manipulator is a formal designation set by the Treasury Department that paves the way for explicit sanctions. 

Far from being simple rhetoric, and it is guaranteed China will take these Geithner soundbites seriously, the charge of currency manipulator will be viewed by China as a strong signal the incoming administration is determined to end the present mercantilist policies where the U.S. takes on increasing debt to consume the good that China manufactures, with the proceeds of the current account surplus recycled back into the U.S. financial markets through purchases of U.S. Treasuries.

This is a fundamental shift but not for the reasons most analysts and media outlets will state; namely, that it means China will no longer purchase U.S. Treasuries, [and that it will switch to gold instead] interest rates will soar and/or the dollar will collapse. No, that is wrong.

First, the most important purchaser of U.S. Treasuries at present are U.S. banks, not foreign governments. Second, this shift, rather than kick starting an inflationary spiral, will actually exacerbate the deflationary debt unwind by increasing volatility, reducing liquidity and reinforcing risk aversion and balance sheet repair. Eventually this will translate into higher cost of capital, but that is a longer-term issue, not the present one, which is rebuilding or maintaining solvency for corporations and individuals.

It would not be an understatement to consider this a serious step toward economic war. For why, read up on the Smoot Hawley Tariff Act.