Good Morning,

Indian festival season support clock having run out, gold promptly fell back to under $900 overnight. A still-rising dollar (now at 85.78 on the index) and further erosion in crude oil prices left the metal vulnerable to a resumption of its former (pre-China news hoopla) trend and such vulnerability bore fruit in overnight declines to the sub- $895 level. Darn. Just when the 'to da moon Esther!' choirs were getting fired up again...

Spot gold lost $9 at this morning's NY session opening, and was quoted at $897.00 per ounce. A large hole developed in the silver market, and was promptly filled with a 31-cent drop by the metal, down to $12.59 an ounce. Whoa, platinum. Or, woes, platinum. It fell another $41 to $1099 an ounce. Palladium lost $10 of its own, to start at $214.00 per ounce. This start had all the marks of a possibly brutal day to follow in these and other commodity markets. Risk-taking when prudence is de rigueur is so...90's - seems to be the message coming from the speculative pits. Including price-risk in gold.

News that could not have helped the market in any way, came from GFMS this morning. Gold scrap supplies probably exceeded 500 metric tons in the first quarter, about the same as global mine production, researcher GFMS Ltd. said. Scrap supplies will be “much lower” in the second quarter unless prices rise “aggressively,” GFMS Chairman Philip Klapwijk said today in a presentation in Zurich. Scrapping will expand this year after jumping 27 percent to a record 1,218 tons in 2008 as higher prices encouraged sales, GFMS said this month.

Put those numbers into the perspective spectrometer, and what do you get? Scrap supplies that equal mine production. Scrap supplies that equal investment demand. Scrap supplies that no one can point to and say Aha! Sinister sellers! - and they are coming still. People need cash. The price of gold is high. A+B = C. Case closed. So long as prices maintain near here or rise further, this is not a phenomenon that is likely to go away. Looks like those lingerie/jewelry parties have had some success. Take away lesson? At a price, there will be gold ready to be mobilized. The question is really only how much and at what price points. Thus far, you can see the ratios. And, in this environment cash is king. People will sell anything for it.

The Tuesday news radar showed a crumbling copper caper making the headlines. This, on persistent fears of a global slowdown - especially in light of the swine flu pandemic taking hold as a real story to watch. While much of the related news is already at the mass hysteria level, the fact is that the UN has already opined that the bug cannot be contained. We are now receiving reports from countries far and wide showing infection: among them, seven EU states, Israel, and Canada. Mexico and the US continue to lead the 'hit' parade.

We fooled you. We said yesterday that the China story had been put to bed. Well, it is in bed, but no covers have yet been placed upon its still warm body. Case in point, the following assessment of the news as given by our good friends at CPM Group. This (we repeat) is not about bullish or bearish (as the REGBs will quickly try to compartmentalize it- again) but about gold's monetary role in the system. Is it reviving? To what extent? Why? and so on.

In a Market Alert briefing note, New York-based precious metals analysis specialists CPM have pointed out some significant aspects of the announcement of the increased 14.6 million ounce (454 tonne) holding in Chinese gold reserves overlooked in most reports. Chinese gold reserves are now stated as being some 33.89 million ounces - or just over 1,000 tonnes, making it the world's sixth largest holder of gold after the US, Germany, the IMF, France and Italy - excluding, though, the 1,100 tonnes held in the SPDR Gold Trust ETF.

Firstly, it is pointed out that the purchases over the past six years had been made by the Chinese State Administration of Foreign Exchange (SAFE) rather than by the Peoples Bank of China (PBOC), which is why the amount of gold had not appeared in China's official reserve figures. Now though, the holding has been transferred to the PBOC and hence the announcement.

CPM reckons this transfer is particularly important in that Chinese government leaders were interested in buying gold over the past several years, but that there was a great deal of internal debate as to whether such gold should be added to monetary reserves held by the Central Bank, or as investment stocks to be held by China Investment Corporation or other non-monetary Chinese government entities. As CPM points out, the real news is thus that that discussion has obviously now been resolved, and the gold has been added to the monetary reserves held by the Central Bank.

CPM analysts believe that the confirmation of the Chinese move to place the gold in its official reserves indicates the extent to which gold is being rehabilitated as a monetary reserve asset, not only by the Chinese monetary authorities but by Central Bankers around the world and suggests that monetary authorities are looking at gold as a monetary asset with greater interest than at any time since the 1960s..

Commenting on the relatively moderate impact the Chinese news has had on the gold market, CPM stresses that this is not surprising given that the total amount represents a relatively cautious buying programme spaced over six years, and that the gold was all bought from Chinese domestic refiners and thus will have had little direct impact on the international gold market. But, looking ahead CPM says that its relatively recent discussions with 'numerous' Central banks suggest that more have been becoming interested in possibly adding gold to their monetary reserves.

While this may not be the proverbial opening of the floodgates, it does suggest that the PBOC, and other Central Banks may become net purchasers of gold in the years ahead, rather than net sellers as has been the case of late.

There you go. Another gaping hole punched into the Radical Extremist Gold Bug theories that central banks are nothing but no-good SOBs

with an agenda to kill gold at all costs so that you or I cannot/will not be able to ever benefit from its historical attributes. Isaac Asimov must be spinning somewhere in his crypt.

Until later.