Good Day,

Gold prices first rebounded above the $1100 pivot point then slipped back towards the $1090 level as overnight dealing were somewhat more active than in previous sessions. Continuing US dollar strength was manifest with a tick above the 81.00 mark on the trade-weighted index and a further slip to the 1.35 level being visible in the euro. Tuesday's spot market opening showed mild losses in the precious metals complex, with platinum once again pacing the group to the downside.

Gold started the New York session off with a $4.50 loss, quoted at $1098.10 the ounce as the European jitters kept things on the boil for the dollar (and against the euro) and pressured crude oil as well (although black gold held up reasonably well, losing only 43 cents to $81.17 per barrel). Silver was off by 14 cents at the start, opening at $16.82 per ounce. Platinum dropped $13 to the $1587.00 level, while palladium lost $7 to ease down to $448.00 per troy ounce.

The markets' yo-yo action continued after the opening bell, and as the dollar slipped under to 81 mark on the index, the metals complex staged yet another comeback. Gold was able to recapture the $1100 level and traded several dollars above it for a while. Dealers we spoke to in New York attributed the mid-morning pop in values to poor US housing sales data which was seen as denting the dollar and thus helping bullion. Sure, it all makes sense. Poor data sparks an appetite for....risk taking.

No change was reported for rhodium at last check, where spot bid stood at $2310.00 per ounce. Market researchers at London-based GMFS opine that gold may decline to the $1030.00 per ounce area in coming weeks, not only as the dollar gains further traction from risk-averse investors, but as general demand for commodities shows signs of softening following India's surprise interest rate hike last week.

Market analysts at Commerzbank, over in Frankfurt, feel that although gold may not remain under $1100 for an extended period, there appears to be some erosion taking place in the levels of private investor demand for the yellow metal (as in: this may well be a crisis, but we have already had the Mother of All Crises, and it seems to have passed). This echoes the findings of the Austrian Mint, which we reported just the other day. Holdings in the GLD remained static for an eighth session on Monday. More on that topic, further below.

The near-half-percent climb in the greenback against the euro followed comments by the ECB's Mr. Trichet, who came out against offering the low-interest loans that Greece has been seeking. It now appears that the country may have to leave an upcoming summit without having obtained the rescue package it sorely needs. The IMF could then be next on the list of doors for Greece to knock upon, in its quest for assistance.

There is a clear divergence emerging between the approaches taken by Mr. Trichet versus his counterpart in the US, Mr. Bernanke. Bloomberg, in fact, opines that the fiscal crisis in Greece and the parting of the ways on interest rate hikes and stimuli withdrawals between the ECB and the Fed may yet push the euro down to lows last seen in 2006. We're talking a $1.20 euro here as a possibility, folks.

Meanwhile, the folks at Fortis Bank Nederland's VM Group recently asked this pointed question: Why is gold relatively strong, when ETF demand appears to have collapsed?

The answer the VM offers in its recent study highlights the very same worry factor that these columns have consistently been mentioning: i.e., the lack of growth in the gold-oriented ETFs. Says the VM Group: Our estimate of the supply/demand balance for 2010 posited a chunky surplus, even with 700t of ETF demand (up slightly from 576t in 2009).
But inflows as of mid March in 2009 have not just been light; there were in fact net outflows of around 15t across the 17 ETFs we track. By this time last year there had been huge inflows, 105t in January 2009 and an enormous 221t in February 2009, while March 2009 also saw a large inflow.

VM continues, and warns that: Unless investment in ETFs show significant increases soon, Q1 2010 will have seen an enormous shortfall [in purchases] of over 400t of gold. With fears over the euro still prevalent in financial markets, perhaps nervous European investors looking to preserve wealth might make some large ETF purchases; however there is no evidence of this yet. VM concludes that: even if we take the most negative view on supply and the most positive on demand these views are still not able to account for the shortfall in ETF demand.

The situation is not much different when it comes to the silver exchange-traded funds. While the white metal has shown some recent strength when compared to gold and managed to narrow its ratio vis-à-vis the same to near the 64:1 level, the picture is -at best-anemic in the ETF niche. VM reports that: Silver ETF demand has been very weak. The holdings of the physical ETFs so far in 2010 have shown a slight fall of 241,249 oz (7.5t). In 2009 by contrast 47.7 million ounces had been purchased at this stage (1,485t), and in 2008 some 20.9 Million ounces (649t) had been purchased.

However, for the time being at least, the picture presented by PGM group metals and related ETFs is somewhat different. VM observes that: Unlike gold and silver, investment flows remain positive into the ETFs, although the rapid pace seen in January after the launch of the US ETF has ebbed away, particularly in platinum.

As of 12 March, total platinum ETF holdings were 934,296 oz, up from 902,230 oz at the end of January. Palladium has done better, with holdings of 1,636,523 oz, as of 12 March, up from 1,493,664 oz at end January (with more than 100,000 oz of this coming from the US ETF). If we add to these the net long positions on the futures exchanges of Tacoma and Nynex, both platinum and palladium are at a record high (see chart ETF/Futures holdings). Platinum totals 2.6 Million ounces while palladium is at 3.2 million ounces.

The VM Group however is a bit more bullish on the platinum/palladium price at the moment, albeit it has been skittish on the same previously. It based its earlier cautionary outlook on the 'mixed bag' that the car sales data on a global basis has been pointing to. Specifically, the sales figures in the USA, which, although 14% higher in February than in the same month one year ago, still show a 33% slump from the levels achieved in 2008. The 'new normal' is anything but.

Yesterday's close under $1100 for the first time since February offers some sign to be concerned about. Gold might be in the early phases of a (now) three-week-old price downtrend on the daily bar chart. So observes our own Morning Roundup today. Closing beneath $1088.50 could usher in further technical damage. In the interim, watch for the yellow metal trying to close above $1106/$1108 - the current resistance numbers. At the end of the day (and not just this one) it's all about the same trio: USD-EUR-AU.

Happy Trading.

Jon Nadler