Goldman Sachs revised their H2-08 average oil price forecast from $107 brl to $141 brl. This forecast adjustment is consistent with projections from Goldman earlier in the month that suggestion upside potential in crude was as high as $200 brl over the next two years.

Goldman's research note stated, "To balance trend global GDP growth of 3.8 percent against trend supply growth of 1.0 percent, prices need to rise on average 14 percent from here in the second half of 2008."

Not surprisingly, oil shot higher led by the July futures contract, which set a new contract high above 127.00. Brent spot crude is back pressuring its record high at 125.81 (09-May) as well.

Firmer gold has pushed the gold/oil ratio back above 7. While it's too early to tell if the widening of the spread we've been calling for has begun, today's price activity is encouraging. Gold has a fair amount of catching up to do in order to bring the ratio back toward more normal levels.

With the exception of a brief period in 2005, it's been forty years since an ounce of gold bought so little oil.

As stated in a recent report, even if the spread regains half of the drop from 10 to 7, that would put gold well above $1,000 again. And that's assuming oil holds steady at present levels.

I don't know of anyone calling for a reversal in the oil trend, although a short-term correction in oil combined with rising gold prices would serve to improve the ratio. For example, a drop in oil back to 120 and continued gains in gold to 930 would bring the ratio back to 7.75.

The dollar is weaker today, but only slightly so. The dollar index remains confined to a tight range just above 73.00. The EUR-USD rate is trading within the confines of yesterday's range. A rebound above 1.5600 is needed to return focus to the longer-term downtrend in the dollar.

If the downtrend in the dollar does start to re-exert itself, it would lend additional credence to our expectation that gold is headed back toward the midpoint of the recent range.

Platinum is also giving a strong indication that the precious metals are coming back in favor. We made note of Monday's violation of the 61.8% retracement level of the decline from 2290 (04-Mar high) to 1804 (20-Mar low), which came in at 2104.35. We were looking for penetration of chart resistance at 2116.00/50 to confirm the renewed strength and we've seen that move today.

Last week's launch of platinum exchange traded notes (ETN) along with expectations of another bullish outlook by Johnson Matthey bodes well for eventual new record highs. Platinum gains will further bolster gold prices as well.

Johnson Matthey is the world leader in platinum distribution and the sole marketing agent for Anglo Platinum, the world's largest producer of platinum. They will release their important platinum metals group outlook next week.

News that global hedging of gold fell by 18% in the first quarter is further evidence that our own Mike Kosares was spot-on when he wrote his Golden Gut Check piece back on 07-Apr.

The break of an important trendline on the gold chart earlier in the session bodes well for a short-term challenge of an important retracement level at 916.82. If this level gives way, a move into the 936.60/952.80 zone will be likely.

There have been some early indications that funds may be moving back into the precious metals. You may recall that it was deleveraging by the funds that initially sparked the correction in the metals back in March. If they are indeed returning to the market, it could be the driver needed to get gold back above $1,000.

Gold Market Movers:

U. Michigan consumer sentiment index for May (preliminary) dropped to 59.5, lower than the market was expecting, versus 62.6 in Apr.

US housing starts for Apr rebounds 8.2% to 1.032 mln units, above expectations, versus .954 mln in Mar.

Oil rises to record above $127 on Goldman outlook, China demand

Global gold hedging falls 18 pct in Q1

Gold hits 3-week high as central banks amass low-grade bonds in credit rescue plan

ECB concern over liquidity scheme