Good Morning,

Gold prices continued to tread water near the $950 line overnight, as the US dollar sustained minor dings and as crude oil eked out a few more cents' worth of gains.Late-night talksin Europe over GM's Opel unit turned sour after the latter launched a last-minute SCUD, asking for another near half-billion dollars. Someone, let this beast just die. Unprofessional to the max. One of the firm's major suppliers, Visteon, filed for Ch. 11 today. On the geopolitical scene, Japan flat-out asked the US to completely isolate N. Korea from the rest of the world, following this week's dastardly display of desperate bravado by its rogue regime.

New York spot bullion prices opened with once again minor gains for gold - quoted at $949 per ounce, following a $0.90 rise at the start. Silver added8 cents, to open at $14.83 - the white metal could be targeting the $16 zone, if this pattern above $14.60 keeps up. Platinum lost $3 to sink to $1130 and palladium rose $1 to $224 per ounce.

Technicals still show gold as slightly overbought, and corrections to between $915 and $925 could be in the cards. For the moment however, gunning for another above $956 close and testing the $960-$970 zone appear to be the market's tilt. Some amount of gold could conceivably come out into the market soon, in the wake of the liquidation of the near $3.5 billion-sized Pequot Capital Management. The firm's boss, Arthur Samberg, indicated to his shareholders that the firm cannot continue in business, following the launch of a federal insider-trading investigation. Two decades, down the proverbial drain.

Jobless claims hit the statistical files today, and they indicated somewhat better-than-expected conditions on the labor scene. Claims fell by 13,000 on the week. The total benefits roll increased to a record 6.79 million. But, more than 90% of workers in the US are still on the job, producing as well as earning. April durable goods orders rose 1.9% - at least a thaw in the ice of the slump. The global credit-rating saga rolled on, with New Zealand recapturing a 'stable' outlook and India coming under potential pressure on the back of its government budget deficit growth.

R.E. mogul and Tribune Co. owner Sam Zell sees the tail-end of the recession and believes that the housing supply-demand equation will be in 'equilibrium' shortly. While this is still a period of adjustment, and unemployment could be set to rise further, the balance -according to Mr. Zell - is shifting towards the positive side. Many have pointed to the housing inventory situation as the single item that needs to clear before the 'all-clear' signal is given for the US economy.

OPEC decided to leave production quotas alone for the time being, notwithstanding one again growing global inventories. Whatever enthusiasm for the euro was still visible in Euroland, dissipated further this morning, as perceptions grew that the ECB will need to embrace the big 0 like other central banks have done.This, despite confidence levels that are near a six-month high. In other news, in a sure sign that Zimbabwe is upon us, complete with 231 million percent monthly inflation, the New York Times went to $2 a copy. Make that, $6 a copy (!) for the Sunday Edition in the nation's capital. Extra, extra, extra - read all about it!

Speaking of games of confidence, the credit crisis that had bitten hard into Europe's lenders has would-be borrowers flat on their backs, ready for anything.Desperate times call fordesperate measures. But, is every lender totally constipated? Is every borrower shut out?Depends.

There are certainly some exceptions. Like the Banco Della Mafia . All is very well with Italia 's three major crime syndicates. They netted over 70 billioneuros last year, for a 54% profit-margin. Now, there is an offer you can hardlyrefuse.Exxon Mobil made half as much as La Famiglia. in profits. Capisce? You do, even if you are parking meter-maid humping Mr. Berlusconi. The country is now unraveling at a dizzying pace, and desperate borrowers are finding short-term comfort (and lots of available cash) in loans from the mob. Such credit, however, comes with certain...strings attached. Like your life. Arrivederci.

Italian police arrested over 60 alleged Mafiosi this morning, in Naples. Yeah, that should make a dent, all right. The central bank of the 'family' is clearly staying away from the US dollar. The reason? Not what you think. It simply weighs too much...A million dollars in $100 bills weighs about 22 pounds (10 kilograms), while $1 million in 500-euro bills at the current exchange rate of about $1.38 per euro weighs about 3.5 pounds. Thank you,ECB.Mille Grazie. How about some gold, (good) fellas?

So, who will determine long-term interest rates? The markets will. Not Don Corelone's mumblings. And probably not Marc Faber's, either. But, for the time being there is plenty of action to watch in the market for Treasuries. CNN Money chimes in:

Treasuries continued their sell off Wednesday as the yield on the 10 year benchmark bond climbed to 3.72%, a stunning increase from the recent lows just over 2% in late 2008. Investors have become concerned that record amount of debt sales and quantitative easing by the Treasury may lead to inflation.

Further contributing to the huge bond sell off were comments by Marc Faber that the US might enter “hyperinflation” based on the Fed's super low rate policy, huge increases in government debt and massive liquidity injections into the banking system. The yield on the 10 year bond has been climbing since early January, gradually putting pressure on mortgage rates. Until recently mortgage rates did not jump dramatically since the spread between the 30 year fixed rate mortgage and the 10 year treasury remained narrow.

Some analysts have speculated that the Fed was able to manipulate mortgage rates lower over the short term through purchases of mortgage backed securities. Wednesday, the Fed discovered the limits of establishing artificial price points. The Fed may be able to manipulate rates in the short term, but the markets will ultimately set the price of money based on the reality of US financial conditions.

“The last two months have been quite abnormal” as mortgage rates generally held in a range between 4.5 percent and 4.75 percent even while Treasury yields began climbing, he said. Wednesday, the “abnormal” pricing situation was shredded. Major banks sent out multiple mortgage rate increase notices as the day progressed. Here's an example of how mortgage rates have increased with one large bank over the past couple of days.

On Thursday, May 21st, a prime mortgage borrower could have obtained a 30 year fixed rate of 4.75% with a half point fee. On May 27, the equivalent rate for a prime borrower is 5.375% with a half point fee. To obtain the 4.75% rate today, a borrower would need to pay approximately $5,400 on a $250,000 loan to buy the 4.75% rate. The monthly payment difference on a $250,000 mortgage loan at 5.375% vs. 4.75% amounts to $96 or $1152 per year.

So much for Mr. Bernanke's grand experiment of buying mortgage debt with printed money. If the spread between mortgage bonds and the 10 year treasury widens to the spread of 238 basis points seen in March 2008, the 30 year mortgage rate will be over 6%, even if the 10 year treasury remains at 3.72%.


Final item for the day: Jim Dines retains his gold and uranium positions, but is very, very excited about rare earth metals. Any takersforlanthanum pool accounts? No, not you, Mr. Kim. Sit down, please.

Good Day.