Good Morning,

US Treasuries and crude oil went their merry opposite ways overnight, as the former held near their lows over in Europe on anticipation the Fed may engage in fresh bond purchases, and the latter climbed on bets that the US economy will recover at a better pace [perhaps owing to such Fed largesse.

Gold prices held steady within a narrow ($1203-$1211) range as overseas player observed the US dollar hovering near the 80.50 mark on the trade-weighted index while the euro advanced to $1.325 against it- a three-month high. The Fed meets tomorrow amid a mixed bag of signs that show the US recovery as still being hampered by anemic job creation, little in the way of lending (by banks) and more in the way of saving (by households).

Not that such sluggishness has not characterized the initial phases of previous recoveries from recessions; it appears however, that (when it comes to speculators at least) folks these days want instant results, like, yesterday. When they do not get them, a variety of assets are generally pounced upon whilst others are given a favorable trading nod. Of course, there are still those for whom none of this is good enough anyway, and are actively rooting for a global fall into a fresh crisis - because, you know, they are prepared by having allocated 50 or 90 percent to what they believe will save their hide.

Indian gold demand retreated over the weekend as above-$1,200 gold discouraged would-be buyers from sorties to their nearest bazaar. Dealers were quoted as expecting gold premia to drop from their current $1.50 per ounce nearer to $0.25 per ounce in coming days, if the price strength continues to be manifest. At least one festival is due in a couple of weeks; that of Raksha Bandhan. It remains to be seen if the calendar can overcome price-sensitivity among those wishing to buy some yellow metal.

By the way, gold is not the only commodity to which locals are sensitive when it comes to price tags; India's cotton mills are once again crossing their arms and saying 'No!' to imports of certain commodities. A couple of year ago, cotton mills refused to import cotton. These days, flour mills in the country are refusing to bring in grain to be milled from Australia and the Ukraine. Guess why. Meanwhile, the weaker US dollar was cited as an excuse by [carry] traders to load up on copper. The orange metal has fallen last week as news that China's domestic lenders' stress test parameters called for scenarios of possible 60% declines in real estate values.

Gold opened the new trading week in New York with a $1.70 gain and was quoted at $1207.40 per troy ounce basis spot bid. This took place against a US dollar at 80.57 on the index and a near 90-cent gain in the price of a barrel of black gold (last seen at $81.57). The euro rose to $1.326 at last check. Speculative focus remains on the Fed and what it might do as regards easing (or what might be interpreted as easing) or not do after it meets this week.

The Fed, may, however, surprise the aggressive specs just yet. Several analysts have opined that although the language the central bank might use come statement day could be more liberally sprinkled with words of caution (those very words that the gambling crowd interprets as QE2 on the launch pad), the action part of the equation may not have anything to offer to bettors. Not yet, anyway.

Recycling the 'extended period' mantra along with a fresh dose of 'unusual uncertainties' may do the trick at least until a fresh set of economic statistics that make the matter of asset purchases and/or some kind of easing more urgent. Then again, surprises to the upside may yet filter into the picture and make the Fed look wise in not having acted in haste, just because carry traders are screaming 'buy' (assets).

Acting in haste -simply to placate those who see doom in the employment figures- could be seen as caving to the desires of market players rather than taking into account the progress that has actually been made on the economic front. If there is anything the Fed hates, it is in being seen as acting from the gut; whether in front of, or behind the curve. Thus, our expectation is fore measured words but no measurable action. Consider the extraordinary measures taken thus far and the fact that everything takes time to have an effect.

EW analysis offered up after last Friday's market close allows for a fresh push in gold prices to somewhere within the $1210-$1233 range while noting that the last advance to June's record high took place amid waning momentum, and that a breach of the $1156 recent low would keep the long-term decline (which may have begun following that June peak), intact. It was also noted that the recent drop was short in both duration and depth to imply a 'complete' corrective event. Preliminary studies indicate a $1044 potential price target.

Silver opened with a 7-cent advance, quoted at $18.53. However, platinum dropped $14 and palladium lost $4 per ounce, falling to $1557.00 and $485.00 respectively. No change was yet noted in rhodium, which was showing a bid quote of $2,120.00 per troy ounce at the market opening time.

Platinum and palladium were clearly impacted this morning by a combination of not-so-hot Chrysler financial reports (it is still losing money) and by news that China's car sales took somewhat of a step backwards in July, growing at their slowest pace in 15 months. That is, if one can call a 13.6% gain for the month as 'slow.'

Slower than the 50% gains seen in previous months, yes, but the auto sales market also encounters some seasonality during the hot summer period. Analysts are looking forward to learn how the niche shapes up around September, when the landing of new models and the advent of cooler weather may spur would-be buyers into showroom action.

The question is, will growth levels in auto sales slip to, and remain in, the single digits, or is this contraction more of a sign that Chinese government efforts to nip real estate speculation fever in what is a giant bud (aka a bubble) are gaining traction and are impacting the psyche of hitherto...freewheeling spenders? The Chinese auto sales news was largely countervailed by positive news on the same front from India. Local vehicle sales jumped 38% to a record -hot summertime notwithstanding.

This concludes today's roundup. However, not before leaving you with words of...wisdom offered by Jamie Dimon earlier this year. Mr. Dimon bluntly stated that 'the financial system experiences a crisis every five to seven years.' Whether or not this new math stands up to the scrutiny of market or economic 'cyclists' is amply debatable. The bugaboo in Mr. Dimon's casual observation; the next crisis will be upon us no later than 2015 and the reforms brought about by the just-concluded financial implosion will not yet have been fully implemented.

The good news? By the end of 2012 there will not be a need to worry about 2015. This, according to the Mayan calendar. Its adherents are loading up on party supplies as we speak.

Happy trading.

Jon Nadler 

Senior Analyst, Kitco Metals Inc.North America

US & Canada Toll Free: 1 (877) 839-8036 

Websites: www.kitco.com and www.kitco.cn  

Blog: http://www.kitco.com/ind/index.html#nadler