Good Morning,

A broader range and added volatility were the main features in the gold markets overnight, as crude oil vaulted past $135 per barrel but the dollar changed course and briefly recaptured the 72 mark on the index. The greenback rallied from its lowest level in a month amid rising bets the Fed will raise interest rates by year-end, its current 'stand pat' signals notwithstanding. The central bank has also signaled that rate cuts are not to be expected despite the ongoing contraction in the economy as the threat of inflation at fully 1% above its target represents a larger risk. Gold was down about $10 in the early morning hours as participants were monitoring oil (still on the plus side) trading at about $1.5 under its overnight high, and as the dollar appeared slightly firmer for the day.

Spot gold trading opened the New York session with a $6.30 loss, quoted at $925.50 per ounce ahead of the release of US initial jobless claims figures, but the focus today remains firmly fixed upon crude oil as that market continues to dominate the headlines (not to mention values we see in other assets). Oil executives were being turned on the rotisserie in front of Congress yesterday and expressed opinion that crude prices would be fair value at anywhere from $35 to as high as $90 per barrel. Silver lost 11 cents on the open, trading at $17.87 and the noble metals were seeing profit-taking as well, with platinum down $20 at $2181 and palladium falling $3 at $457 per ounce.

Those who have held out through the agony of poorly performing gold shares for quite some time now, may see their resolve pay off in the not too distant future, according to analysts. At a Toronto CFA Society Luncheon in mid-January, I saw a set of compelling slides presented by one of Canada's top technical analysts, Don Vialoux, wherein he pointed to an impending switch in performance from gold over to mining shares.

According to some observers, we could be in the early stages of the pivot point where the ratio of the gold miners ETF, (the GDX) vis a vis the gold bullion ETF (the GLD) changes course and reverses the downtrend that's been in place since the October 2007 peak, when gold outperformed the miners for some six months. It is thought that during a gold bull market, due to their leverage to the metal, the miners should normally outperform gold. Lance Lewis, over at financial site Minyanville, chimes in:

There are a number of reasons why we probably saw the metal outperform the gold shares over the six months following October 2007. But the point is, like the unusual environment during that half year, it's equally unusual for gold to outperform the shares. And we may now be seeing the action revert back to the historical norm. This is going to catch many people, especially those who view miners as underperformers (including many hedge funds that are long GLD/short the GDX, a trade that has basically worked since October), off guard.

After all, how many times have you been told by talking heads, If ya wanna buy gold, buy the GLD, but don't buy the miners. They're underperformers. These talking heads don't understand the gold market - and they sure don't understand the economics of the gold miners.

If the downtrend in the GDX/GLD ratio is finally smashed, we'll see a popular hedge fund trade (short GDX/long GLD) unwind as well. And the gold shares in the GDX will be the beneficiaries. Let's see what happens.

For now, watch the 72 and 135 pivot points for the dollar and crude, as the battle of the (oil) bulge is not yet over. The dollar standing up to oil for a change might translate into additional gold selling today. The initial jobless claims numbers gave the dollar a further boost (continuing claims were flat) in early trade. We'll catch up in the afternoon. Stay tuned.

Happy Trading.