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By Jon Nadler

Gold prices went on a vertiginous roller-coaster ride on Friday, rising at the start of the session, dropping in a mid-morning free-fall, and then recovering in the early afternoon. The large drop, to $869, was seen despite a dollar that continued on the weaker side today, and was partially attributed to crude oil coming off about one dollar from another record high of $126.20 per barrel. The counterintuitive move and the metal's inability to mount a serious rally to at least $900 on a day when oil set new highs and platinum advanced $75 per ounce does raise some valid questions as we go into next week. We cannot cheer about the comeback as much as we have to wonder why there was a significant decline to begin with. (And, please, leave the conspiracy theories on the shelf, where they belong)

Indian festival demand came to a close as local went through the motions and bought a few tonnes of coins and such, but the price certainly was not making them all that happy. The Economic Times of India sums it up: "The local market digested the outcome of the two-day Akshaya Tritiya festival that ended on Thursday, but the largely moderate sales showed Indians were not used to gold's current levels, traders said. Demand for gold is set to taper off in the weeks ahead and slip into a lull as the monsoon sets in next month and weddings become rare."

Demand for commodities as inflation hedges resurfaced this week, after oil's largest weekly gain in more than a year. Black gold has now doubled in value and poses serious threats to the global economy. Americans may well spend this driving season paying closer and closer to what their motoring counterparts in Europe and elsewhere are already paying. Or, not driving. Try $6 per gallon or more, for a start.

New York spot trading was -at last check-showing the same $2.50 gain at $885.50 bid, with which it opened the session. A close of from $885 to $890 could still set it up for its best weekly gain since February, but such progress has been difficulty-ridden. The dollar continued to decline towards 73 on the index in early trade, as it grappled not only with the parabolic oil price track, but also with an amalgam of financial firm losses and woes ranging from Allianz to AIG to Citi. To cap things off, the greenback also weighed the ECB jawboning regarding rates not budging any time soon (as in lower) in order to fend inflation off.

Pressure on gold however, also came from the rising conviction that the Fed is done with its rate cuts and might embark on the opposite track come year-end. Silver lost 3 cents to $16.80 while platinum rose a very robust $71 to $2089 and palladium climbed $7 to $443 per ounce. The advent of two UBS exchange-traded note products in platinum has had the market on fire and certainly helped it reach back to two week highs. Aside from this, the headlines were once again hijacked by crude oil. Investors remain transfixed by it. Gold -for its part- may be looking more at the economic damage oil might inflict than at the inflationary implications of its stratospheric price. The jury is out for now.

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