Advise & Dissent

Good Morning,
Gold remained near the three-month highs it managed to reach on Wednesday but overnight price action saw a tempering of additional buying following words from the ECB's Mr. Trichet regarding Greece that temporarily calmed markets. The ECB left rates unchanged at 1% as it finds itself unable to withdraw the stimulus measures currently in place due to the threat of a Greek default.

The euro-region remains in suspense regarding the fate of its southern member's financial fate as the recently cobbled-together plan to help it appears to be coming apart at the seams and as local banks cry 'help!' Greek bonds slumped this morning, signaling apprehensions that the life preserver that was tendered to the country last week is deflating before it could be of use.

The euro thus took a couple more on the chin in early trade and slumped back towards the 1.33 mark after having recently (barely) touched the 1.35 pivot point. The beneficiary of the recurring jitters was once again, the US dollar. The greenback was seen approaching the 81.80 level on the index, and at some point gold players chasing technical buy points may not be able to withstand the pressure coming from its show of strength.

Clearly, that was not the case yesterday, and the very early action on Thursday pointed in a similar direction for gold, as spec funds are apparently still gunning for higher levels and of course their money has been plainly visible in the commodities complex over recent sessions.

Curiously, gold EFT holdings appear to once again be...holding out on the yellow metal's rally, as their balances have not shown growth for over one week now. Between that and locals in India also sidelined for a second day due to gold's climb, we are left with the funds as the prime movers here.

New York precious metals prices opened mildly lower this morning as the aforementioned dollar gains sapped a bit of the enthusiasm out of the market and some opted to turn to profit-taking after a three-day run of healthy proportions. Spot gold started with a $2.40 loss, quoted at $1145.60 per ounce, while silver shed 17 cents to open at $17.96 this morning.

The noble metals retreated to just under the significant pivot points of $1700 and $500 the recently managed to climb above. Platinum fell $6 to the $1795.00 level and palladium dropped $8 to $499.00 the ounce. The only metal able to (thus far) maintain at round-figure levels appeared to be rhodium, which was last quoted at $2700.00 bid.

Signs that Fed Chairman Bernanke's apprehensions about the vigor and make-up of the US economic recovery are well-founded emerged this morning, as the Labor Dept. reported an 18,000 initial unemployment claims figure for the week ended April 3. The gain in filings was unexpected and the statisticians pointed to traditionally 'volatile' conditions for such data around the Easter holiday. The Fed boss reiterated his concern that the recovery has (thus far) been mostly one that has not created, save for last week's decent report of 162,000 positions being added to the US economy in March. While Mr. Bernanke is well aware of employment levels, jobs creation, and their importance to the US recovery, he is also keeping an eye out for the potential challenges posed by the very processes his institution initiated when climbing out of the crisis became job #1. Moreover, the Fed chief is also looking at broader, structural issues facing the US, as it- in his words- must start to prepare for challenges posed by an aging population with a credible plan to gradually reduce a soaring public debt.

Meanwhile, one of Mr. Bernanke's teammates, the NY Fed's William Dudley, said yesterday that the damage caused by financial-market bubbles should bring about a sea change in the way the central bank acts, with the Fed needing to move toward active efforts to reign in financial market excess.

There is little doubt that asset bubbles exist and they occur fairly frequently, and when they burst the economy frequently suffers. While it can be difficult to discern the existence of a financial-market bubble, uncertainty is not grounds for inaction on the part of central bankers, Mr. Dudley said.

The above begs the question as to when, and in what fashion, China's central bankers might act to prevent the bursting of the country's obvious property bubble. Will it be pre-emptive action, or a mopping up operation the