Good Morning,

Following the overreaction of all time, gold prices stabilized overnight and traded in a channel of from $925 to $945. The market remains nervous and unsure of the effects of whatever the next announcement from the Fed might have. Yesterday's Fed surprise engendered conditions as wild as only those that veteran traders witnessed in prehistoric times, dating back to 1980.

Mind you, the real surprise was only the matter of timing and size (of the proposed buys). Following the G-20 tete-a-tete in Brighton last weekend, the markets had received plenty of body language signals that those who attended were going to start buying debt. Very likely, it was left to the Fed to act first and take the lead hit. Now the ECB feels the heat. The surprise, if any, were the markets' reactions to the largely expected action. First Blood Part II does not hold a candle to the market violence seen yesterday. Every short-selling enemy in sight was obliterated.

At the end of the day, and after the body count of Wednesday's losing traders is complete, we are left with the same conclusion: spec funds that were all too happy to sell the stuffing out of the metal in the first half of Wednesday bough it back (and then some) on anticipation of inflationary fallout...circa three years down the road?! IF such conditions manifest themselves at all?

The idea that global hyperinflation must be the necessary outcome of today's (and the last 18 months' worth of) central bank actions and strategies appears hard to extricate from the minds of market pundits, even though they lack any concrete proof that the Fed (or other central banks) will let one set of nasty conditions (deflation, now) turn into another, equally grotty one ( hyper -not just garden variety inflation).

New York bullion trading's starting price will now show the largest price gain in four months, as tallied by the difference between the Wednesday 13:30 NY time futures close and now. Those who watched the Kitco screens in the minutes and hours following the Fed announcement already know that the heavy-duty action unfolded in large part during the period leading up to the 17:15 close of the aftermarket.

Thus, we now show this morning's spot opening at $952.20 as a $10.20 gain. Might we see $1K before the day/week is finished? Could we see a fallback to $900? How about: either number is plausible inside of several hours' worth of action? Perhaps we should remind readers of 1980 spreads of $50 in spot gold and several dollars in silver. Perhaps we should also bring up the fact that, at the time, there were several instances of a market showing no bid but only an offer, vice-versa, and none at all (for brief periods). Hopefully, all the electronica at our disposal these days will make for different conditions. Hopefully.

Polled traders this morning, indicate they have no specific expectations (or, could that be 'ideas'?) as to where the next two days will take gold prices. Some fallout is however expected to manifest itself in new purchases by small retail investors who will now take the 'hyper-you-know-what' gospel as...gospel, and start acting accordingly. Then again, any spec fund sitting on a 40, 50, 60 dollar per ounce gain today could be chalking up some realized gains after pulling triggers. Back on the range, in the physical world, India filled its jewelry demand from internal scrap disposals this month. Imports? What imports? Try $850 an ounce gold, they say.

Silver took off strongly out of the market gates this morning, following last night's rather anemic reaction to the Fed hoopla. The metal started the day with a 26 cent gain at $13.15. Platinum was way ahead in early going, gaining $25 to $1083 per ounce, along with a $2 gain in palladium to the $200 even level. Noble metals players read the Fed's ultimate stimulus depth-charge as a precursor to some kind of automotive sector renaissance. The US dollar was last seen at 83.36 on the index, wobbling around as if it had been hit with a green hammer. It has. Much repair work will be needed. Crude oil added $3.14 to rise to $51.28 per barrel. Buy the (hyper-you-know-what) rumor is alive and well in that niche too.

So, do you want a recovery? Or would you rather pass through the event horizon and fall into the black hole of deflation? The Fed will not let you answer the latter with anything but a resounding 'no.' Bloomberg's Scott Lanman encapsulated the purchase decision that was heard 'round the world as follows:

By committing to buy Treasuries and double his purchases of mortgage debt, Federal Reserve Chairman Ben S. Bernanke signaled his determination to avoid a repeat of the Great Depression and his willingness to pump as much cash into the economy as needed to end the current crisis.

U.S. central bankers decided yesterday to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion, aiming to lower home- loan and other interest rates. The Fed kept its main rate at almost zero and may keep it there for an “extended” time.

The moves sparked the biggest drop in 10-year Treasury yields since 1962, rallies in the stock market and gold and a plunge in the dollar against the euro. Economist Richard Hoey said Bernanke has created the “ Rambo Fed ,” referring to the Sylvester Stallone character skilled with weapons.

“This is a very powerful and aggressive move,” Hoey, chief economist at Bank of New York Mellon Corp., said in an interview with Bloomberg Television. “One of the reasons I've been arguing we won't have a depression is we've got a Fed chairman who understands the problem and is going to come with the right diagnosis and the right medicine.”

With the purchases of Treasuries and housing debt, Bernanke is effectively using the Fed's powers to print money and aim it where he and other officials believe it will have the greatest impact in lowering borrowing costs. The 10-year note yield fell two basis points to 2.52 percent as of 9:14 a.m. in London, according to BGCantor Market Data. The price of the 2.75 percent security maturing February 2019 rose 5/32, or $1.56 per $1,000 face amount, to 102 1/32. A basis point is 0.01 percentage point.

The Federal Open Market Committee's decision was unanimous, indicating the agreement to start buying Treasuries quelled disputes over how the central bank should expand its balance sheet. Richmond Fed President Jeffrey Lacker and others favored government-debt purchases instead of intervening in credit markets, as Bernanke has pioneered in the past six months.

Bernanke has studied the Great Depression extensively and published a book of his papers on the subject in 2000. In 1929, the Fed was “essentially leaderless and lacking in expertise,” Bernanke said in a November 2002 speech. The situation led to decisions that were associated with a “massive collapse of money, prices, and output,” he said.

Yesterday's decisions will add $750 billion in purchases this year of mortgage-backed securities issued by government- sponsored enterprises Fannie Mae, Freddie Mac and Ginnie Mae, for a total of $1.25 trillion. The Fed has already announced $217.1 billion in net purchases out of $500 billion planned through June, under a program unveiled in November.

The central bank will also double to as much as $200 billion this year its planned purchases of debt issued by Fannie Mae, Freddie Mac and Federal Home Loan Banks. The Fed bought $44.4 billion of the so-called agency debt as of March 11. The $1 trillion Term Asset-Backed Securities Loan Facility, which is opening this week to jumpstart consumer and business lending, “is likely to be expanded to include other financial assets,” the FOMC statement said, without elaborating.

The Obama administration is considering melding the Treasury's plan to set up private investment funds to buy frozen assets with the Fed program, known as the TALF, people familiar with the matter said. Treasury Secretary Timothy Geithner may make an announcement as soon as this week, after his first unveiling of the strategy caused a sell-off in financial stocks.

“This is not really a victory for Lacker,” said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “Lacker seems to be arguing for Treasury purchases instead of targeted programs. They are instead supplementing the targeted programs. They are just using all tools.”

The New York Fed will concentrate Treasury purchases among two- and 10-year securities. The transactions will take place two to three times a week, and the Fed may also buy other maturity Treasuries and Treasury Inflation-Protected Securities, according to a New York Fed statement. The moves may more than double the Fed's balance-sheet assets by September to $4.5 trillion from $1.9 trillion, said John Ryding, founder of RDQ Economics LLC in New York.

At the same time, the changes increase the danger, once the economy recovers, that the Fed won't be able to unload the securities quickly enough to raise interest rates and counter inflation, said Ryding, a former Fed economist. Bernanke floated the idea of buying Treasuries in a Dec. 1 speech. Then the FOMC said in its last statement on Jan. 28 that the Fed would be “prepared” for the purchases if “evolving circumstances” indicated their effectiveness.

The option gained ground after the Bank of England succeeded in lowering long-term rates by buying U.K. government bonds known as gilts in a program announced this month, said Lyle Gramley, a former Fed governor. The 10-year gilt yield slid to the lowest level in at least 20 years after the purchases began.

“Our objective is to improve the functioning of private credit markets so that people can borrow for all kinds of purposes,” Bernanke said at a Feb. 24 Senate hearing. “We are prepared, and we want to keep the option open to buy Treasury securities if we think that is the best way to improve the functioning or reduce interest rates in private markets.” While Treasury yields fell, the strategy isn't guaranteed to work in reducing other rates.

The Fed is “naive” if officials think the move will lower borrowing costs, said Doug Dachille, chief executive officer of New York-based First Principles Capital Management. The “historic precedent” of when the Treasury Department was buying back debt amid the budget surpluses of the Clinton administration show it may fail to do so, he said.

And now, back to something completely not different: the discarding of the hitherto cheered 'positive gold-dollar correlation' (nah, it was just a fad) and the return of 'the dollar must die so we can thrive' equation that has constituted the base of the radical gold bugs' ideology for as long as one can remember.

Therefore, watch the dollar. Not much else. At least one potential dollar ship-jumper should have been placated by yesterday's mushroom cloud-sized smoke signal: China and its 'concern' about US debt.

Happy spectating.