Good Morning,

Picking up pretty much wherethey left off last night, gold prices rose another percent early this morning, motivated mostly by US bank stress-test result apprehensions and were once again showing good spec fund offtake. Yesterday's advance represented the best gain in the active contract since the beginning of April. Today's gains look encouraging after a prolonged slide in recent weeks, but the question is what happens after the release of the stress test results, and Friday's labor stats. In the interim, if it's Tuesday, it must be shorting the financials day and going long gold. It is as simple as that.

Well, the putative gold cartel evidentlyneglected to pull the bright red suppressive manipulation trigger for a second morning in a row today, as themetal rose towards a re-test of the $915/$920 resistance level. Must be busy putting out fires elsewhere. Shocking.But, hey, one learns shocking newthings every day. Like the one about Van Gogh's ear being cut of by his friend Paul Gauguin, with a sword. Or, the one about a local Chinese county orderingofficials to smoke more, in order to help the economy! And we thought we knew it all, eh?

New York bullion trading opened Tuesday's session with a $8.70 per ounce gain, quoted at $911.90 and not looking like any fear of profit-taking had made its way into the trading pits. Investors are showing fears of another kind at this point; fears that the leakedallegations of half of the tested US banks needing additional capital in order to make it through the stressful period in progress, may be true. We will see on the 7th. For now, the story has legs and is fueling renewed safe-haven purchases.

Whatever one might like to call the tests: stress is not the same as solvency. These are not solvency tests. They are the Sims as applied to the banking world. Looking for outcomes among banks should unemployment rise to 15%? Look no further. The tests will tell us who makes the cut, and who gets cut up.

Forbes offers this take on the matter:

The world awaits the delayed release of the government's bank stress tests, but many seem to have forgotten that Thursday's report won't be the final word. The stress tests are based on a few assumptions about the government's outlook on the economy, bank loan portfolios, bank credit-loss reserves and future revenues. Already word is leaking out that some banks, including Wells Fargo , Citigroup and Bank of America will be asked to come up with more capital (though at least Bank of America is denying this).

Thursday's highly anticipated stress test report is being viewed as the final answer on which banks are healthy and which need more intervention. But since when are market outlooks static? Quite the opposite of an ending, the government will almost certainly have to revisit the stress test benchmarks in the coming months and rerun the numbers as the economic conditions it used as inputs evolve. If the financial crisis offers any guide, this could occur much more than once--look at how many times banks have had to reassess their portfolios of loans and securities and write their values down after saying early on they thought the risks were contained.

Very few folks appreciate the dynamic nature of the stress tests, says Bert Ely, a bank regulatory consultant in Alexandria, Va. The regulators can't sit here and say with absolute certainty how much money banks will need a year from now.

Meanwhile, hedge fund manager Bill Ackman, appearing on the Charlie Rose Show, opined that:

What's interesting is that the banks in this country have all the capital they need. The problem is too much of that capital is in the form of debt, not enough is in the form of equity. The way we solve that problem typically in America is through a reorganization process, where a judge adjudicates a bankruptcy or some other form of conservatorship or reorganization. They figure out the value of the firm. They figure out how much equity needs to be raised and they compromise with the bond holders until the bond holder end up owning the firm. Ackman called this a classic restructuring approach.

The signals of US economic stabilization and possible upturn are fueling gains in white metals, on the other hand. Silver rose 34 cents to $13.37, platinum added $9 to $1127, and palladium climbed $3 to $222 per ounce. In the background, a relatively stable dollar at 83.78 on the index, and a marginal decline in crude oil, last seen at $54 even per barrel. Last year, the buzzword in commodities for the second half of the year was demand destruction. At this point, judging by recent trails etched on charts such as copper's, the operative word is becoming (hopeful) demand construction . Yes, we coined that one. All rights reserved.

In some respects, the signs of economic recovery are also being interpreted as harbingers (welcome ones at this point) of higher-than-current levels of inflation. We all recall Japan-based talk circa five years ago about 'desirable levels of inflation' that did not materialize. Most recently, Japanese stats indicate deflation is still clouding the country's economic skies, and is refusing to let them clear. That's the problem with deflation, once it takes root. And why, Team Bernanke is sprinting so hard to avoid it.

Happy Trading.