Good Morning,

Back to the real world. Hope everyone had one great last summer hurrah.

I think we will come to define today as emotional. As has been typical with each previous approach of the $1K level, emotions are running as high as they can in various gold-related camps. Wild declarations shall be made during the course of the day -once gain- and the media will likely not need to call various pundits for a smart quote; they will offer them up in missives such as this one, aplenty. Not sure how 'smart' ours are, but here we go, nevertheless:

For the fifth time ever, gold managed to etch the $1000 level into the record books as speculators pushed it aggressively higher in their search for signs of overhead resistance. A net long position nearing 600 tones has plenty of market-watchers nervous, especially those who have seen such a tilt develop in the market without a corresponding rise in open interest. We will see what the COT reports offer to the analytical crowd when they are tallied up next. Nerves however, are beginning to show a bit more each day, following the recent price action.

The millennium mark in gold prices was achieved without much drama in overnight metals trading, as the US dollar decisively broke through the 78 mark on the trade-weighted index. The one percent drop in the US currency gave rise to an equal-sized percentage climb in gold ahead of the NY open. A larger than $1.70 gain in crude oil, supported by the same weakness in the US currency, bolstered the fund-driven advance in gold and other precious metals as well. OPEC meets this week, in order to decide...nothing. The cartel feels that everyone ought to be happy with near $70 oil. Clearly, some (recovering economies) are not. The almost on-cue melt-up that commenced on the 1st of the month has added nearly $60 to the price of the metal.

New York spot bullion dealings started the post-holiday session off with further gains. Gold opened at $1003.80 per ounce, up by $9.30 against a fast-shrinking US dollar that was quoted at 77.24 on the index, and at $1.446 against the euro. Silver rose 44 cents to start at $16.66 this morning, while platinum and palladium were shining as well on the coattail effect precipitated by the gains in gold. Platinum was ahead by $2 at $1280 and palladium gained $2 to open at $293 an ounce. Labour action at Impala Platinum came to an end after having cost the world's number two producer anywhere from 20,000 to 50,000 ounces in lost production. since August 24.

The obvious questions arising this morning are related to what might come next, and most importantly, the crowd wants to know, when. None of the key market players we have consulted appear to have a clear-cut answer to either query. There are just as many thumbs-up on the continuation of the rally to the 2008 peak of $1033.90 as there are thumbs-down, whose owners see an overbought -and then some- market skating on very thin structural ice. Like the ice that s forming in India as regards 2009 gold imports, or the one that could re-ignite scrap flows back to the flood levels experienced in Q1 on the back of such gold values.

For the moment, India is on a gold-buying hiatus anyway, until the 19th of the month, due to what the local calendar defines as an undesirable time o purchase. Should pre-festival buyers return to current values later this month, they might just continue to avoid the local bazaar, as the have for most of the year.

To all of that, you can add an equal number of thumbs-sideways - belonging to those who see a new range possibly in the making: one that extends from $880 to $1080 per ounce. The reading of the chart tea leaves offers no further clarity either; some see the emergence of a triple-top in the metal, whilst others draw lines that extend to $1300 from here on out. Ah, the beauty of multiform plurality. Or, the silliness of it, for that matter.

The guns-and-gold crowd is once again declaring TEOTWAWKI and is urging fellow unprepared militants to buy the metal even at this price, while others see nothing but the set-up for a huge disappointment in this spike due to what they allege is a vast conspiracy to sucker in the little people with empty vessels such as the GLD ETF which is -in their minds-bereft of any real gold. Like we said, emotions flare up at such moments in time. Just remember that we were also supposed to have returned to work today, only to find a banking system that had been shut down for an 'indefinite' holiday by US authorities.

Clearly, the central item of focus shaping the drama in the gold market remains the US dollar and ho it is being perceived by various bettors. A raging battle is unfolding between those who see and/or demand a de-throning of the hitherto global reserve currency versus those who see a new paradigm emerging for the US economy and US consumer and thus a new dawn for the American currency as well.

The greenback bears continue to point to recent noises made by China, Russia, and now the UN about the desirability of replacing the greenback with something else more 'adequate' for the global economic system. Suggestions have ranged from increasing SDR usage to all kinds of 'soft pegs' but nothing concrete has been blueprinted as yet. The bears also fret about the US current-account deficit and are putting the onus on President Obama to address the issue aggressively. Dollar collapse? Any day now.

Dollar bulls on the other hand, correctly question what that 'something else' might be and/or what country it originates in. They also add that the dollar will benefit from the inevitable (and already underway) rise in the US savings rate and the shift in the American economy to more of an export-based model. US savings rates had collapsed to zero in April of last year but have now risen to 6% and they still might have some way to go. The yield on US 10-year bonds is running nearly 4% higher than overnight inter-bank lending rates- a differential that some analysts say makes US debt highly desirable. Dollar collapse? Nah. Dollar resurrection.

And that, folks, is what we mean by emotions.

Back to the price screens and the phones. In all seriousness, if you need to call to get a comment, please do so any time. We ventured to offer some nuggets of (very early morning) 'wisdom' to Bloomberg already. By now, we should be fully caffeinated. And the market, well, it ought to be in full-swing shortly. That's what a pendulum does.

Best Regards,

Jon Nadler
Senior Analyst
 
Kitco Metals Inc.
North America