Grindhouse - NOW PLAYING!

By Jon Nadler Sep 15 2008 9:11AM www.kitco.com

Good Morning,

A new horror double-feature opened this weekend and smashed all market box office records. Financial giants stumbled and fell, and Ike wreaked havoc on Houston and the US oil supply. The financial Pandora's box which opened one year ago continued to emanate a string of scary news and is now left with the same lone item in it as the original: hope. Hope that the global economy does not go down the proverbial drain. A preview of such nervousness was offered by China cutting interest rates for the first time in six years. Stay tuned for more of the same.

The surprise event of the weekend was not the fact that Lehman found no suitors and opened the day ready to file for Chapter 11, down 80% in value. No, the shocker of the year was the swiftness and willingness with which Merrill sought to run under BofA's wings in an attempt to avoid Leman's fate. A $50 billion bargain, this. One year ago Merrill was worth at least twice as much. You want to talk deflation in values? Come join the party. The trailers at this show were featuring fright-fests from AIG and WaMu and a rate cut comedy from the Fed coming to a theatre near you soon.

The unthinkable also happened in precious metals in the wake of these mega-events. Gold forums were electrified overnight and expectations were for an opening where gold was up from $50 to $100 and silver was seen to gain more than $1. Gold reached a high of $785 on the developments and then it gave up those gains as it continued to obsess about caving crude oil values instead.

The events that played around the clock during the weekend provided gold prices with a once in a lifetime opportunity to turn around and surge to record levels. This, in fact, was the outsized event that we had to factor into the gold price equation when allowing for a repeat run to four-digits to materialize. The metal's failure to react and react convincingly to a crisis of this magnitude raises questions which at this point we would rather not address. For the time being, let's just say that a certain corpulent lady has not yet been seen on the stage to sing the Nibelungenlied. If she is a no-show, her contract will be up.

Let's get something very clear from the outset. Forecasters who equated such events with the dollar's failure and gold's renaissance were simply wrong. A quick scan of price tickers this morning showed gold clinging to a 1% gain at $771.00 but threatening to turn negative, silver off 31 cents at $10.54, platinum down $31 at $1159.00, crude oil losing just over $6 at $95, and the dollar...up 0.75 at 79.18 on the index. The quest for cash and the asset liquidation race is on. Let the manipulation theories fly. Meantime, markets will do what markets always do: provide buyers and seller a milieu within which to manifest their take on things via their trades.

No need to add feature stories today. The best thing we can suggest at this time is to stay alert, watch from the sidelines. These markets are a meat grinder from which not too many will emerge unscathed. Volatility will likely rise exponentially as we have many a disoriented trader and investor out there trying to figure out which way to run. Perhaps a break at the movies (after securing one's cash) might be in order after all. As they say, all bets are off. This time, literally, they may be off the table as well.

Direction? Unknown. Trading 'range' ? From $735 to $795 olatility? Is that a question? What will tomorrow bring?

More of the same.

Cautious Trading. Please.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal