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Expect the Unexpected
By Jon Nadler

Precious metals had a dramatic trading session on this, the first day of February. Just as the perma-bulls were getting ready to pop the champagne corks on gold's apparent assault on the $940/$950 target following this morning's US unemployment report, conditions shifted in several key market niches and gold prices fell apart swiftly. Whatever buoyancy was being added to the equation early in the day, by strength in base metals on the back of news of continued foul winter weather in China, dissipated after the jobs report and the fears it raises about slackening US demand for materials. The US economy may already be in the thick of a dip.

While gold, platinum, and silver rose strongly overnight amid news that South Africa's power supply firm has been unable to live up to its promised delivery percentages to mines, we had expressed concerns this morning that some [funds] were on alert for a possible second failure near $940 per ounce, as resistance had proven strong at that level. After the US dollar decided it was not going to get to 1.5 vis a vis the Euro after all, and on the back of an unexpected jump in US manufacturing activity in January, the balance in the market tilted towards profit-taking. Some traders sense the end of the road for dollar declines, others see the disconnect that gold has embarked upon vis a vis rising scrap sales and dwindling jewelry offtake.

New York gold trading finished Friday's wild ride fairly deep into the minus side, with the metal dropping $15.30 per ounce, at $907.90 as participants were seen reducing positions in the final minutes ahead of the weekend. The day's lows came near $903 and the bulls can still take some comfort in the fact that the metal did not close under the round figure. As for closing under $910/$915, well, that is another story...Speculative expectations of one additional Fed rate cut in March (and corresponding anticipatory gold rally) remain alive, but so does the specter of a more substantial bout of profit-taking. The ice of support levels proved fairly easy to break today.

Today's $34 range may be a sign of (volatile) things to come...Silver lost 8 cents to $16.79 after a brief journey above $17 and very near highs not seen since 1980. The US dollar rebounded significantly for what is seen by many as a dead feline (up to 75.42 on the index). Oil continues to have a hard time, slipping $3.07 (!!!) today - to $88.68 (funds selling it too?). Well, at least the oil market does have a 'cartel.' Not that it is sinister. It just wants to keep selling the stuff. OPEC refused to augment production at the behest of President Bush, and has some concerns about even selling its current output levels in full, should a global slowdown hit this year.

Platinum rose $25.00 to $1756.00 per ounce and will likely continue firm until the S. African mine electricity woes are resolved to a level that inspires a higher degree of confidence among players. This is not to say that the noble metal is a "good buy" here. The UK's Guardian informs us that: "Investment guru Jim Rogers won't buy platinum at record-high prices but sees uranium as an up and coming play on metals markets. Asked about platinum , after it spiked to a record of $1,759 an ounce, the Rogers told an investors conference on Friday: "Would I buy it today? No, I wouldn't buy it today." He said he may consider buying if prices were to come down."

Before anyone jumps to the conclusion that somehow gold got "whacked" by the Imperial Storm troopers, bear in mind that physical gold buyers on the other (and extremely important) side of the world have their own view of price "manipulation." To wit:

"Jewellers [in India] said consumers, in the thick of the wedding season, had trimmed budgets and were bringing in old jewellery and bars to pay for new purchases.

"People think prices have been manipulated [by speculative funds] to their highs, and that they will come down again," said T.K. Chandiran, managing director of KTM Jewellery Ltd, in Coimbatore." -this, according to Reuters India.

Reuters S. Africa seconds that finding today:

"Analysts in India said the marriage season -- which generally boosts buying as parents prefer to give gold to brides for financial security -- has failed to lift purchases as buyers are not comfortable with heightened price volatility. Some industry estimates suggest Indian gold imports might slip by 25 percent from 2007 to around 600 tonnes this year. The country imports about two-thirds of its annual gold demand, while the gap is met by recycling of the metal and local output.

"The price is too high. They (Indians) won't buy gold," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong."

Well, someone will buy; at a price. We heard from more than one investment-type buyer who is willing to wait for $875 or so. What that ultimate bargain level will be, remains to be seen. Next week may determine the immediate direction better. Suffice it to say that gold received as many bullish news as it could wish for over these last two weeks -including tinfoil hat propaganda- and it still did not manage to overcome the $950 level. A fresh supply of really bad news is needed. Then we can talk new records. Maybe.

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