Good Morning,

The bulls retained the upper hand in the gold market overnight as the US dollar fell to a two-week low ahead of economic data due this week. As prices firmed, demand in India dipped once again and local prices went to a discount as buyers failed to materialize. Speculative fund buying is currently bolstering gold on a possible route to tests of $915 and maybe $925, however the team at Standard Bank in Jo'burg notes that investor demand remains cautious despite (or perhaps due to) record oil prices. Analysts at Lehman warn that an asset bubble is reaching worrisome proportions in oil, gold and other commodities. Fast turns could still be in the making.

New York gold opened with a $10.00 gain this morning at $911.60 as the trade looks ahead to the release of leading economic indicator figures for April. Consensus is that the US economic engine remains stalled and that subsequent data on housing this week will confirm that things are not getting better on that front just yet. Thus, the dollar traded at 72.74 on the index and near 1.56 against the euro, while oil continued its vertical journey, gaining another $1.13 to $127.42 per barrel. Silver rose 25 cents to $17.19 while platinum added $40 to reach $2168.00 per ounce. Gold regained the favors of one analyst last week, while losing short-term support from another. Denis Gartman reinstated a gold position last Friday seeing further upside potential for the metal, while Ned Schmidt of the Value View Gold Report decided to stand aside while the oil situation sorts itself out.

The jury (as well as various officials and scholars) remains at odds regarding the turning point in the credit crisis, the US economic slowdown, and the effects of both on the global economy. Some see containment, others contagion. The Times of India reports that Asia will feel such effects quite soon:

The famous adage 'if the US sneezes, Asia catches cold' still holds true and Asia is expected to feel the heat of the credit crunch in the world's largest economy in the second or third quarter of this year, global credit rating agency Moody's has said. With the US recording two successive quarters of weak growth, we anticipate Asia will soon begin to feel the pinch of slower demand across the Pacific, said Daniel Melser, senior economist in Moody's, a unit of Moody's Corporation. If history is a guide, then expect export numbers around the region to begin sliding in the second and third quarters of 2008, Moody's said in its latest report.

Historically, Asian exports fell about six months after US growth slackened. ...we expect Asia to begin feeling the US slowdown in mid-2008, it said.

The Fed's Dennis Lockhart agrees, but only up to a point, Reuters notes:

The U.S. economy is in the midst of a pronounced slowdown, with very little growth recorded for two consecutive quarters. The weakness was initially centered in the housing sector but has become more widespread, Lockhart said. He also described inflation as elevated due in part to higher energy and commodity prices. But he did not dwell on how he saw price pressures evolving in the speech, and mainly focused on the prospects for emerging economies.

Global economic integration has progressed in recent years to the point that a slowdown in the United States will unquestionably be felt, but not as severely as imagined by some, Lockhart said.

Domestic growth momentum in many emerging economies will attenuate the influence of U.S. weakness. And the accumulation of foreign currency reserves by these countries - the result of trade surpluses - provides an accessible resource to stimulate their own domestic growth to offset weaker exports, should that weakness materialize, he said.

Lockhart also said there were good reasons why emerging economies were investing their foreign exchange reserves in more mature capital markets like the United States. Lockhart said the money would keep flowing, citing a high appetite for savings; domestic currency controls; immature domestic banking systems; and the propensity of households in the United States to undersave and overspend.

In my view, we can expect these upstream capital flows to continue for some time, he said.

Mr. Paulson of the Treasury holds a guardedly more optimistic view, noting that:

The markets are considerably calmer now than they were in March, he said. Mr. Paulson also stressed that risks remained, albeit weaker ones.

Some bumps in the road are likely, especially in the housing sector, he said, but we are closer to the end of the market turmoil than the beginning. - quote from NY Times article.

Make that, some markets. The feel remains anything but calm in oil and commodities. Mr. Bush went away sort of empty-handed after his meeting with the Saudis regarding the oil problem. While first rejecting pleas for an increase in output, Saudi officials later indicated that they will turn the spigots one notch (of 300K barrels per day) higher soon - but, that that was in response to requests from their commercial clients. Nice and polite. Crude does not appear to care about such developments this morning.

Watch for the LEI data, housing later this week, and keep an eye on profit-taking attempts. Conditions remain fluid, and $900 needs to hold up as the week unfolds.

In closing, we wish to extend our sincerest feelings of sympathy to all of our friends in China as they commence a three-day mourning period for those who fell victim to the terrible quake in Sichuan.

Good day.