Good Morning,

A bitof stability returned to the metals markets during the overnight hours. Gold rose about $3.00 on the heels of a 0.63 point setback in the dollar on the index (now at 84.59) and was seen as also aided by a mild 77-cent rise in crude oil (to $50.69 per barrel). While the Nikkei turned in a sorry performance and dropped 232 points, US stock index futures were taking aim at higher levels ahead of a calendar full of events.

New York spot gold dealings started off in the green column, with the metal adding $3.30 to $896.50 per ounce. Indian buying is now mothballed for a while, and Mother's Day jewelry purchases are on the horizon, but are expected to drop nearly 20% this year. Sorry Mom, Godiva and FTD for you this year - but we still love you.

Although being long ahead of Fedspeak day has its immediate merits and potential rewards, gold continues to exhibit structural problems after the head-fake run on the Chinese buying news. CBGA and IMF worries continue to plague speculativebuyers' minds and little in the way of fresh positive news has emerged of late to make for a quick run to $920, or $950.

Such problems still pale in comparison to the shaky fundamentals in the noble metals complex however. Silver gained13 cents to make it back to $12.62 while platinum showedfurtherdamage, losing $5at $1086 an ounce. The metal appears to be targeting at least $1050 in the near-term, as the wheels keep flying off the US auto industry, and as jewelers are hiding in empty shops. Palladium rose a modest $1 to start at $215 per ounce.

The US dollar fell overnight, as perceptions that the American economy has bottomed out prompted easing up in safe-haven positions among speculators. The Japanese yen went along for the ride. Today, jury verdicts will be handed down on Q1 US GDP (expected to still show a contraction, albeit not as severe as what was seen in Q3 2008), and on the Fed's interest rate policy (expected to show no change). US consumers are apparently humming a contraction schmontractiontune as both confidence levels and spending have experienced a countertrend pop.

On the banking front, embattled BofA chief Ken Lewis may be handed his walking papers at or after the firm's shareholders meeting this morning. Former Merrill head John Thainclaims the bank lied about its role in the giant bonuses and losses at Merrill that cost himhis job back in January, after Bank of America bought the troubled brokerage firm.

On the bank stress-test front, more news leaks. Such as the story that about one third of the tested institutions might require additional capital. Citi and BofA keep making the list of suspects, but we will have to wait it out until the 4th of May to learn the who's whoand the what's what of these 'tests.' Remember, the scenarios that were simulated entail unemployment levels that are unmentionable in print.

While we are on the subject of banks, let's take a look at exploding another recently popular myth being propagated (as in propaganda) in various metallic headgear leagues; that of the 'massive' printing of money being the catalyst for equally massive inflation to follow. Inevitably.

Someone is choosing to ignore the facts. For the sake of a sales agenda, evidently. Let's see what Barron's dug up on these matters of expansion and contraction. It turns out that we have just gone through the Mother of All Bank Runs globally, and that as a result of such a phenomenon, some of the expected (hoped for by some?) effects have not, and will likely, not materialize:

THE FEDERAL RESERVE has been roundly castigated in some quarters -- even former high officials of the central bank -- for its aggressive and unprecedented steps to combat the credit crisis.

But data just released by the Bank for International Settlements suggest that, if anything, the expansionary measures taken by the Fed (and in concert with the Treasury) were dwarfed by the record contraction in the global banking system brought on by the crisis . According to the BIS, which acts as a central bank for central banks, total bank claims shrank by $1.8 trillion in the fourth quarter, or 5.4%, to $31 trillion. This was the largest decline ever recorded.

In other words, there never was a global run on the banking system such as the one seen in the final three months of 2008 , which followed the bankruptcy of Lehman Brothers and the near-collapse of American International Group in September. The numbers serve to confirm the extent of the tsunami the swept through the world's financial system.

As the balance sheets of the global banking system threatened to shrink like a dying star and create an economic black hole that could suck in the world's economy, central banks and treasuries around the world responded in kind. In the U.S., the Fed doubled the size of its balance sheet, to about $2 trillion from $900 billion in the fourth quarter, and is in the process of adding another $1.15 trillion to its assets through the purchase of Treasury and U.S. agency obligations and mortgage-backed securities. Meanwhile, the federal government established the Troubled Asset Relief Program to pump $700 billion into the banking system.

Meanwhile, authorities abroad have established similar programs, notably in the U.K. Central banks from Japan to Canada have embarked on similar quantitative easingplans, effectively printing money to offset the credit contraction that has taken place in unprecedented proportion. Unlike in the 1930s, when central banks actually aided and abetted the collapse of the banking system, today's leaders responded to the unprecedented crisis in the fourth quarter with equally unprecedented force.

Yet, Fed officials find themselves uncharacteristically on the defensive for their actions, even from former, highly respected officials of the central bank. As with former presidents, retired Fed officials generally have followed the protocol of not criticizing their successors. Former Fed Chairman Paul Volcker, who saw through the fight against inflation in the late 1970s and early 1980s against fierce opposition from all quarters, has not been so reticent of late. While he kept mum during the term of his direct successor, Alan Greenspan, he has taken to task the Bernanke Fed, as well as the Treasury, for their aggressive counter-attacks against the credit crisis.

I don't think the political system will tolerate the degree of activity that the Federal Reserve, in conjunction with the Treasury, has taken,Volcker said a symposium on monetary policy in Nashville, Tenn., last week.

Similarly, Bloomberg News quoted William Poole, the monetarist former president of the St. Louis Fed, as complaining that the central bank's actions threaten inflation. Fed officials are dramatically underplaying the risks and the liability side of the balance sheet,said the economist who now is a consultant to an investment group.

Yet, the effects of the shrinkage of the private banking system's balance sheet are unequivocally evident. It's now history that fourth-quarter gross domestic product shriveled at a 6.3% annual rate. What's become apparent is that the real output of the finance industry shrank last year at nearly twice the previous record rate of decline, according to JP Morgan Chase economist Michael Feroli.

Real output in the finance industry fell 3.0% in 2008, compared to the previous record of a 1.6% decline in 1958. Because finance looms much larger in the economy, last year's contraction shaved a hefty 0.24% from GDP, compared to just 0.05% in 1958. From 1997 to 2000, finance typically kicked about 0.5 percentage points to GDP growth, Feroli notes. In 2008, only construction and manufacturing detracted as much or more than finance from GDP, 0.24% and 0.32%, respectively.

Construction and manufacturing are directly affected by the collapse in credit, so the financial travails extend far beyond Wall Street. Now, however, policy makers are accused of being too solicitous of Wall Street. To be sure, banks, including the I-banks, have benefited from the actions of the Fed and the Treasury. But that is separate from the question of the macroeconomic impact of their actions.

Those who contend that the expansion of central bank balance sheets is inflationary ignore the contraction of balance sheets in the banking system, as well as the so-called shadow banking system of assets and liabilities not recorded on banks' books. This analysis is very different from arguments that appeal to the output gap,the difference between the economy's potential output and actual production. That analysis effectively says that high unemployment will hold down wages and prices, which manifestly did not happen in the stagflationary 'Seventies.

Inflation, as Milton Friedman taught, is always and everywhere a monetary phenomenon. Yet the current central-bank expansion is offsetting the contraction in the banking system -- which Friedman criticized the Fed for failing to do in the 1930s.The new BIS data bear out the justification for the Fed's actions, notwithstanding the critics' claims.

Our good friends at CPM Group New York launched the second of three statistical ships yesterday. The Annual Silver Yearbook saw the light of day, in front of an eager media delegation. What did they learn? That the silver market is approaching a record surplus. Were it not for investment buyers (who are thankfully, out in force) we would be looking at a very different landscape of values in what has been termed as 'poor man's gold.' Without further ado, the highlights:

In their annual yearbook, New York precious metals consulting firm CPM Group forecasts that the net surplus in silver is expected to rise to 182.1 million ounces this year, which will approach the record 222.2 million ounces of silver purchased in 1980.

In the Silver Yearbook 2009, CPM estimated that total silver supply increased 2.3% to 803.2 million ounces last year, and forecast that total silver supply will increase 2.5% to 823.1 million ounces this year , primarily due to increased mine production and secondary recovery from silver scrap.

Noting that mine production accounts for 70% of total silver supply, CPM projects that mine production may increase 3.2% this year to 566.3 million ounces. CPM advises that the total gross annual mining capacity of expansions and new mines due over the next couple of years will add at least 118.5 million ounces of annual silver production. More projects should be expected to be advanced in the future, adding to this total.

Silver from scrap rose 4.7% in 2008 to 254.5 million ounces, CPM said, anticipating a 0.9% increase to 256.8 million ounces from scrap in 2009.

However, fabrication demand for silver declined to 701.2 million ounces last year, down 3.1% from 2007 . A large part of the decline in fabrication demand last year was attributed to the deepening global economic conditions coupled with relatively high silver prices,CPM noted.

Demand may decline even more sharplythis year as CPM forecast an 8.6% drop to around 641 million ounces this year . The precious metals consultants also advise that jewelry demand could fall from 261 million ounces last year to 249.9 million ounces of silver this year. Industrial demand could drop to 383.7 million in 2009 from 430.3 million ounces in 2008.

CPM's analysis also found that the key driver for silver prices is investor attitudes toward silver and how those attitudes are being reflected in investor buying and selling of this metal . Over the past couple of years investors have significantly increased their silver holdings and this has been reflected in relatively high silver prices. It is expected that investors will continue to be interested in buying silver through 2009.

In their report, CPM notes that shifts in the nature of investment management, changes in the nature of investment management, changes in the methods for investing in precious metals, and other trends all suggest that investors may continue to buy large volumes of precious metals for several years to come, seeking to maintain their safe haven investments even when economic recovery emerges.