By Jon Nadler

After scaling up to $953.90 on the back of a new record of $115.50 in crude oil, gold prices turned back to the low $940's as the US dollar climbed to near 71.70 on the index.

Oil also took a break and traded around $114.75 this Thursday. A $1.96 billion dollar loss at Merrill Lynch in the first quarter has stock investors on edge following yesterday's Morgan/Coke rally of over 255 points in the Dow. The Nikkei average mimicked that performance overnight with a 252 point rise, despite some warnings of an impending significant (20%) slump in Toyota's profits on the back of the conditions in the US market and the rising Yen. However, the stock market remained stalled for most of the Thursday in the US, as did other markets overall.

New York spot gold drifted lower during most of the session and was showing a more substantial $8 near 2PM , quoted at $937.80 bid. Gold's month old ascent from the $870's has thus far been marked by difficulties and lack of conviction. This, at a time when other commodities are setting fresh records. Participants took the jobless claims numbers which had increased more than was expected, as well as the NY Conference Board's gauge of future economic activity as further confirmation that something along the lines of what took place in 2001 may be in the making, or is already underway.

This, despite NYCB's index of leading indicators having shown a modest rise after five consecutive months of declines. The numbers were probably reflecting the effects of the recent injections of funds into the banking system by the Fed. Silver dropped a dime, and was quoted at $18.20 while platinum continued to advance, rising $27 to $2046 and palladium added $1 to $453 per ounce.

Bloomberg reports that platinum climbed to the highest in almost five weeks in London on speculation power shortages in South Africa will curb growth in supply as demand for the precious metals increases. The nation may suffer a deficit of electricity for seven years, state owned utility Eskom Holdings Ltd. said yesterday. South Africa supplies 78 percent of the world's platinum, and is also the second biggest producer of gold.

``It's becoming more and more difficult to get [gold and] platinum out of the ground fast enough to meet demand, said Walter de Wet, head of commodities research at Standard Bank Group Ltd. in Johannesburg. ``It's getting more expensive to generate electricity. There is a capacity shortage.

A story appeared on CNNMoney today taking note of the survivalist instinct and its revival of late, as it relates to gold. The writer, Elizabeth Spiers, opens with:

There are only three constituencies outside the mining or commodities trading industries who have historically demonstrated consistent enthusiasm for acquiring gold: street pavers in heaven, leprechauns, and survivalists. I can't speak to the status of the first two, but the last are enjoying a tremendous boom in influence.

Conventional wisdom holds that an ounce of gold can generally buy the same goods over time regardless of how expensive things get, making it a good hedge against inflation. And it naturally follows that many survivalists think inflation wouldn't be as likely a problem in the first place if the dollar were still pegged to the price of gold, as it was until it was unilaterally uncoupled by executive order in 1971.All this would seem to make gold an attractive long term investment. Is it? Well, it depends on what you mean by investment.

She then points out that:

Speculators who bought gold at its peak in 1980 and sold at the low in 2000 lost 70% on their investment. (For comparison, the Dow went up 1,113%.) If you were a survivalist during that period, you might argue that those losses were irrelevant, because when dollars are worth nothing, gold at $280 an ounce will look good. But if short term gains or losses are relevant, gold can easily be a bad place to put your money.

Investment advisors have long suggested that gold in small doses helps protect an overall portfolio. It tends to move independently of other asset classes, and unlike any type of security, it doesn't run the risk of going to absolute zero. And if we look at it in the very, very long term the past 100 years returns have closely matched the rate of inflation. As long as you don't buy out of anxiety driven speculation, the kind that drove gold to its peak in 1980, it's generally considered a conservative investment.

Anxiety driven speculation, however, should not be taken lightly. Even the most amateur investors understand buying low and selling high. With gold at another all time high, would it really make any sense to buy it at the current level of more than $900 per ounce? The answer seems obvious: only if you think it's going to go significantly higher on a speculative basis.

Ms. Spiers concludes her story with a small but important caveat:

For what it's worth, even the hard core survivalists who believe heavily in gold investments as both a hedge and an alternative currency understand that nothing totally protects against economic uncertainty. They acknowledge that when the SHTF, and TEOTWAWKI happens, there's still the problem of protecting your gold reserves, which could always be confiscated by people with guns or prohibited by whatever's left of the government.

In the interim, the dollar's gyrations and crude oil's every price tick will continue to provide the overall direction for gold. No surprises there. On the other hand, individual investors appear slightly skittish on jumping into fresh long positions at the moment and may hold back until a clearer uptrend is confirmed. One of the reasons we saw a better day for platinum today. At least there are clear cut factors currently on the front burner in its favour.

Jon Nadler is Senior Analyst with Kitco Bullion Dealers Montreal

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