Good Morning,

The dollar's much vaunted 'swoon of death' following recent US debt buyback plan announcements was nowhere near in sight this morning. Hard money newsletter vendors now have to focus on why the greenback is acting more like Dracula than D.O.A. Frank Bigelow. At this juncture, the financial world is being rattled by different quakes. Ones that favor reliable (albeit far from perfect) havens. This week, the initial jitters are GM and G-20 related, and investors are once again parking funds in the greenback and the yen. The euro was largely jilted as expectations of an ECB rate cut this week held back would-be takers. Thus, true to the long-term inverse equation, gold prices came under selling pressure in Asia overnight and continued to erode ahead of Monday's opening in NY. On the index, the dollar was last seen at $85.58, while crude oil fell hard - losing $1.50 to $50.88 per barrel.

The spot market started the morning session in New York on the downside, losing $11 to $912.40 after overnight lows near $907 were seen on the back of oil weakness and dollar strength. A volatile week awaits. Participants have the G letter on their collective minds as we start it. GM, G-20, Geithner, and of course Gold (as in, that which is to be sold by the IMF) are the focus of speculative plays at the moment. Silver started off with a 32-cent loss at $13.02 per ounce, while platinum declined $5 to $1119 and palladium lost the same amount, opening at $212 per ounce. Goes without saying that a GM bankruptcy announcement (expected as early as tomorrow by some) would not exactly be the signal to load up on long noble metals positions just now. Mr. Wagoner was helped aboard a wagon that would take him out of Motown as part of the quid pro quo the US Government's rescue package of the American car industry. Mr. W. might sign up for LinkedIn and contact his counterpart from Peugeot - also jobless since this weekend. C'est la vie in ze car industree...

Say 'Ciao!' to Chrysler as well, which is now basically a FIAT appendage. So, the long-standing Saturday morning garage debate between Joe and Jim Six-pack may finally come down to I'm a Ford man conclusion. Henry would be proud. Or, not. Gold buyers in India continued to be as present in the bazaars this weekend as Ferris Bueller at school. Locals are overtly stating that they might show interest at $815 gold than at $915 for same. Pakistan's gold imports slumped 77% as its would-be buyers repeated the pattern we have seen emerge from that region as well as the Middle East. One month to go before the 'sell in May' seasonal syndrome rolls around. Brides must be fretting about whether they will get IOUs for gold for the big day, versus actual baubles. At any rate, if gold is supposed to stage a rally this week - on the back of GM's demise and first notice day tomorrow - it might have to do it from (possibly) under the $900 mark.

Our contacts at RBC indicate that in-house research points to a bit of caution as regards stratospheric gold prices (even if such reservations are of the medium and longer-term orientations, and the current robustness in metals values is comforting to many). Platt's reports the gist of RBC's Monday morning notes:

RBC Capital Markets is becoming cautious on the gold price at the open of the second quarter, the investment bank said Monday. RBC said that it maintains its view that there is a risk from seasonal weakness in demand during June and July coupled with its concerns of potential emerging market scrap sales in a weak global economy [where have you heard that before? Right here.]. However, it said that it was sticking with its average gold price forecasts of $850/oz for 2009, $875/oz for 2010, and $900/oz long-term.

In a statement, RBC recommended that investors take market weight position in their portfolios, down from an overweight position.

Although demand for gold ETFs in the first quarter of the year has been strong enough to offset weakness from key jewelry demand centers such as the Indian Sub-Continent and the Far East, RBC believes the ETF component of investment demand will likely moderate later in 2009 as concerns over the health of the financial markets begin to subside. We may see some seasonal buying out of the Indian Sub-Continent in April and early May; however, it would likely be below the levels of previous years, given the record gold prices in rupees, it added.

RBC expects the gold price to continue to be volatile, offering an attractive buying opportunity for gold stocks on pullbacks into periods of weak demand in Q2/09 and early Q3/09, RBC said. It believes that, due to aforementioned volatility, the markets could see a trading range from $750/oz to $1,000/oz in 2009. Gold equities are also expected to be volatile, as they tend to trade off the spot price and not a projected average for a forecast period. RBC Capital Markets believes the global Tier I and Tier II gold equities are pricing in a long-term gold price assumption of a range of $800/oz to $850/oz.

One of the assumptions that will come under a stress test of its own, is the one that employs the equation (so badly misunderstood and overused): stimuli of all kinds = naked printing of dollars = guaranteed inflation + hyperinflation = < lunar-aimed gold prices. Bloomberg's Craig Torres fills us in on the not-to-be-dismissed details of the possibly flawed gold bug math:

At 4:30 p.m. on March 23, on a day dominated by release of the Obama administration’s plan to save the banking system and the fourth-best day in postwar Wall Street history, the U.S. Treasury and Federal Reserve released a one-page joint statement on the division of economic responsibilities between the two agencies. Amid the flurry of news, the statement passed with little public attention; neither the New York Times nor Wall Street Journal printed articles about it the next day. The release said that while the Fed collaborates with other agencies to preserve financial stability, it alone is in charge of keeping consumer prices stable, its independence “critical.”

The statement was the culmination of a behind-the-scenes, two-month long debate involving the Fed’s Open Market Committee, as well as the Treasury. The discussions were driven by Chairman Ben S. Bernanke’s concern that work with the Bush and Obama administrations on repairing banks and markets not lead to attempts at political pressure later that would delay the start of measures to combat inflation. “This is all about independence,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. “Even though the Fed is cozying up to the Treasury, it is important to know that the Fed would maintain some stability over monetary policy.”

JPMorgan Chase & Co. analyst and former Fed economist Michael Feroli called the statement “The 2009 Treasury-Fed Accord,” harkening back to a joint announcement by the agencies in March 1951 that freed the central bank from pegging government-bond rates. Fueling the debate is the concern that policy makers will have a tough time if they try to end their emergency-lending programs as soon as next year while the unemployment rate, currently a quarter-century high 8.1 percent, remains at elevated levels. The risk is that, on the one hand, lawmakers and even some administration officials might balk at what they would see as premature steps, and on the other hand that any hesitation on the Fed’s part could spark inflation.

“If we have a slow recovery, which seems likely, who is going to watch them raise interest rates as the Treasury sells this mountain of debt” stemming from fiscal deficits, Allan Meltzer, author of “A History of the Federal Reserve,” said in a Bloomberg Television interview. Politicians “are not going to let them do that, they are not going to want them to do that.” Feroli said he gets frequent calls from clients worried consumer prices will surge as a result of the Fed’s record injections of reserves into the economy. After already more than doubling its balance sheet to $2.1 trillion, the Fed has pledged to buy $1.25 trillion of mortgage-debt and $300 billion of Treasuries, and finance a $1 trillion consumer-loan program.

Fed district-bank presidents Jeffrey Lacker of Richmond and Charles Plosser of Philadelphia have been among the most outspoken sitting officials to warn about diverting the central bank’s mission. Plosser said in a Feb. 27 speech that “an accord to substitute Treasuries for non-Treasury debt on our balance sheet would” help the central bank better implement monetary policy. It would allow pulling back on liquidity injections with “minimal concerns about disrupting particular credit allocations or the pressures from special interests,” he said.

On March 2, Lacker said that an accord with the Treasury “could stipulate that the emergency lending is transferred to the books of the Treasury after a brief period of time has elapsed.” In January, he voted against an FOMC’s commitment to buy mortgage debt and finance securities backed by consumer loans, preferring instead to purchase Treasuries. The agreement between the Fed and Treasury last week included a pledge that “in the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve’s balance sheet, or to liquidate” the assets the central bank has acquired from rescues of Bear Stearns Cos. and American International Group Inc.

Treasury Secretary Timothy Geithner, a former president of the Federal Reserve Bank of New York, said yesterday that the Fed’s injections of reserves into the economy are “not going to create the risk of hyperinflation in the future.” “We have a strong independent Federal Reserve with a very strong mandate from the Congress, and they will do what’s necessary to keep inflation low and stable over time,” Geithner said on ABC television’s Meet the Press. At the same time, he warned that policy makers shouldn’t “put the brakes on too quickly.” Meltzer cites a 1979 lecture by Arthur Burns, who ran the Fed from 1970 to 1978, as an example of how the political climate can influence central bankers. Burns oversaw a surge in the U.S. inflation rate to 12.3 percent in 1974 from 5.6 percent in 1970.

“‘Maximum’ or ‘full employment,’ after all, had become the nation’s major economic goal -- not stability of the price level,” Burns wrote, while noting that politicians didn’t support an inflation fight. Only days after Burns’s lecture, then Fed chairman Paul Volcker launched an attack against inflation, dispensing with political concerns about the economic cost. By March 1980, when consumer prices rose almost 15 percent, Volcker engineered a tightening in monetary policy that drove the benchmark rate to 20 percent. The step sent the economy into a recession and caused unemployment to climb. By December 1982, consumer-price gains had slowed to just 3.8 percent, at the cost of a 16-month recession.

President Ronald Reagan replaced Volcker with Alan Greenspan in 1987. Bernanke’s term is due in January 2010. No congressional leader is calling for the Fed to ignore inflation today. Still, the Fed-Treasury statement specified the central bank shouldn’t “allocate credit to narrowly defined sectors or classes of borrowers,” providing a door to exit from aid to specific markets in the future. To help raise rates when the time comes, the Fed wants the power to sell its own debt as a means of mopping up some of the funds it’s pumped into the economy. San Francisco Fed President Janet Yellen said last week: “I would feel happier having it now.”

Yellen noted that there are other steps the Fed could take. One option would be long-term reverse repurchase agreements, where the central bank borrows cash from Wall Street dealers, putting its mortgage-debt holdings up as collateral. “Every single member of the FOMC is right on top of this, including Bernanke,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York. “The problem is they are spilling over into credit allocations; they are risking Congress stepping in.”

Well before any of the above makes it onto the front pages as a topic of major concern, we have bigger fish to fry. This week, that is. Tomorrow should be see more news popping than the average device in a movie theatre lobby. Then, the new quarter is upon us. Complete with the kick-off at the G-20 in London. Expect a polite match, one that steers away from issues such as doing away with the dollar, replacing it with SDR, gold, oil, etc. Also, one that does not shy away from IMF restructuring proposals, heavy regulatory ratcheting up, and ensuring the success of the Doha round of trade talks. If there has been unanimity (in talk) about something during this crisis, it has been the vilification of protectionism.

Happy Trading.