Good Afternoon,

Precious metals prices did not fare too well on this last day of March, as the commodities complex came under renewed liquidation pressure amid fears of a deeper US economic slowdown. Gold prices lost 5.2% on the month after having spiked to $1033.90 earlier in March. The metal's life above $1,000 per ounce has been limited to three sessions thus far, although the gain on the first quarter comes in at better than 10%. A major slide in crude oil (down $3.61 at $102.00) and declines in base metals helped take gold down to near $915.00 and have raised the spectre of a sub-$900 dip in the near-term.

New York spot opened on the promising side as participants awaited a slew of US economic statistics that start tomorrow and culminate Thursday and Friday with the jobs picture. However, prices soon eroded and fell into the negative column as participants remained mindful that Friday's large losses were part of a broader slump across the commodity sector and not just a result of quarter end book-squaring. Silver corrected more substantially, dropping 68 cents to $17.20 while platinum fell $20 to $2001.00 and palladium fell $5 to $441.00 per ounce. At this point, the bulls are perhaps hoping that coming US data will be bad enough to spark another round of dollar selling and gold buying. Trouble is, the same stats reflect a trend in the demand for commodities that is anything but encouraging.

One of the more bizarre scenarios heard of late has been floated - not surprisingly - by the tinfoil league. Imagine if you will, that sinister central banks are 'pushing' gold out the back door by inverting lease rates. This, supposedly in a desperate effort to suppress prices. Then, imagine that all of this gold is finding overeager buyers in India. Right, and that is why India imported only 5 tonnes of gold in January (a month during which it normally absorbs 60 tonnes or more) and very little in February as well. Lease rates have already come back to near-normal as the month-end nanosecond-long inversion dissipated in the wake of the end of book-squaring. Nothing sinister about that. And nothing that has convinced India to buy. Mumbai probably says: Give us $850 gold and forget the inverted lease rates!

That fairytale is about as credible as the other back-channel talk that some kind of 'squeeze' must be on in the silver market as evidenced by the shortage of small fabricated products among silver retailers. And, naturally, as this so-called squeeze unfolds, the price of the white metal heads towards the basement. It just...sort of follows, doesn't it? As of this writing, you can call Kitco and buy ounces of silver pool on demand, 100 ounce silver bars, and American Silver Eagles. I have personally called several primary distributors today and found that evidently silver Maple Leaf coins may be in a tight supply mode, but silver bags are plenty available.

Aside from short-term, spot shortages of certain small fabricated items, there appears to be no problem. The real holdup is simply a matter of less than adequate supplies of coin blanks from which to mint one-ounce product. Call it poor planning. It has been seen before. Some mints did not figure that buyers would rush out to get their hands on small, high-premium coins at $20 per ounce silver (another sign that prices are possibly topping out). So, where is the squeeze? Only in the arteries of the brains of some very ill-informed casual market observers. Depositories are practically choking on 1,000 ounce silver bars crowding their floor space. It's amazing what tales some bored people will spin when it comes to markets they do not comprehend. Even more amazing, some of their readers actually believe what they have to say. Now, here is something that - on the other hand- is fairly easy to grasp, if not all that pleasant to ponder: Bloomberg reports that:

Overall commodity prices may decline by half as the value of products such as corn, wheat and copper tend to ``overshoot'' on speculative buying, Barron's reported, citing independent analyst Steven Briese.

Briese's analysis of positions by commercial hedgers such as farmers, food processors, energy producers and others who trade commodities daily suggested these investments were fully valued in early September, the weekly newspaper said.

Briese estimates index funds, which account for 40 percent of all investments expecting the price of commodities to gain, hold about $211 billion worth of long positions in U.S. markets, the newspaper said in its March 31 issue.

Short positions held by commercial commodities investors in the 17 commodities tracked by the Continuous Commodity Index were 30 percent higher than the previous net-short record in March 2004, Barron's said.

More active and likely more volatile conditions will develop as we get into April and the reviews of Q1 start filtering into markets. Defensive posturing might not be unwise. It certainly was the case today.

Happy Trading.