Two of the loudest talking heads of the cartel, Jon Nadler of Kitco and Paul Walker of GFMS, provide their typical bearish views on the gold market. Nadler sees a low of $650 in this cycle.

stateside

Good Morning,

Overnight conditions in the gold market remained buoyant, with the metal being able to maintain above $990 per ounce although a few signs of potential slippage were seen in the small declines in oil and mild rise in the dollar. Equities fell in Japan, the Nikkei losing nearly 200 points as worries of a strong yen impacting the country's exporters manifested themselves once again. Speculation about possible government intervention in the currency markets is becoming the topic du jour in trading rooms across Japan and Europe. The dollar was indicated at 72.12 on the index and oil just under $110 per barrel.

Precious metals opened mixed in New York on this, the final trading day of an epic week. Spot gold was barely changed at $995.70, down 40 cents on the day. Participants awaited the release of CPI and consumer confidence (what confidence?) numbers this morning as well as a speech by Mr. Bernanke on 'sustainable' homeownership. That one should be entertaining, no? Silver was down 19 cents at $20.37 and platinum gained $6 to $2094 after reports revealed that January was indeed a horrific months in terms of noble metals production in S. Africa. Mine output fell nearly 16% as the electricity problems basically shut down platinum group producers for more than a week. Palladium added $3 to $510 per ounce.

The credit problem continues to be prime driver of the flight to safety and of the speculative mania exhibited by funds. The latter has pushed various commodity markets into states of distress. It has been at the center of the latest vertical line on the gold charts. We asked the question yesterday as to where we are going next. We received e-mails exclaiming: $2,000! Let's see what some long-time market observers have to say. Our good friend, Paul Walker from the GFMS research firm in London, was recently quoted as saying:

"Tell me when all the bad U.S. news is going to be out of the market and I'll tell you when the turning point for gold is coming," said Paul Walker, chief executive of London-based GFMS. "It's very difficult to know."

Mr. Walker's big concern is what happens once gold does hit its peak and the investment demand dries up.

At that point, the only thing that will sustain the market is jewellery demand, and his prediction is that customers in India, China and elsewhere will wait for prices to "drop really significantly" before coming into the market.

He said that consumers have gotten used to buying cheaper silver and copper jewelry in the face of high gold prices, and they may not be so quick to return to gold.

"I'm really worried that with these high sustained prices, you have a secular shift in the [jewellery] industry," he said.

This, from an article on Canada.com, entitled "All That Glitters is....Unaffordable" If you thought you have read similar apprehensions before, you are right. In these very commentaries over the past four months. Whether or not the turning point Paul alluded to, came with the S&P opinion yesterday that the bulk of the losses in credit markets have been chalked up, remains to be seen. Whether the final tally is $200 billion or the UBS estimate of $600 billion also remains unclear for now. Ergo, the market gyrations we see every time some new related news makes it to the trading screens. The point however is, that this too shall pass. After more pain, to be sure. But, pass it will.

Here is one way that the tables might come to turn. Don your tinfoil hats, it is manipulation time. Of the currency markets, that is. Bloomberg alerts readers that:

"The dollar rose from a record low against the euro and traded above 100 yen as securities firms speculated central banks will collaborate to shore up the U.S. currency for the first time in 13 years.

Goldman Sachs Group Inc. and Morgan Stanley said coordinated action by policy makers to stem the currency's slide is increasingly likely. The gains limited the dollar's losses in a week when it fell to a 12-year low versus the yen, approached parity with the Swiss franc and traded above $2 per U.K. pound.

"The market is certainly on intervention watch," said Hans-Guenter Redeker, global head of currency strategy in London at BNP Paribas SA, France's largest bank. "If I was in their shoes I would intervene in a concerted way that supported the dollar."

Late news is that consumer-level inflation and core CPI rates were unchanged in February. This should ensure that the Fed can go ahead next week and do what the markets say needs to be done. They probably will not do so without adding some statements as to the desirability of a strong dollar and the caveat that rate hikes could come into the picture aggressively as the year draws to a close. In the interim, the expectation of the coming cut will likely keep the gambling hedgies on the boil and have them trying for another spike in gold. Probably not the last one to come, either.

The newspaper headlines will be replete with the "$1,000 GOLD!" title on the financial pages. Time for the sheep to get going. Or, for sellers of jewelry to head to the pawn shop.

Happy Trading,

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal