Closes	INDICATIVE LEASE RATES Based on 30 day maturities
Gold    $422.50	Gold      .00/.50%
SILVER   $8.155	SILVER    .50/2.00%
PLAT       $896.80	PLAT      5.00/12.00%

MARKET COMMENTARY

GENERAL COMMENTS:

Although the end of week results were mixed, the precious metals continue their speculative driven rally, with gold reaching 16 year highs, and silver achieving 17 year highs. The precious metal markets have taken on an independent life of their own of late, quickly divorcing from the recent historic influence of the USD. The Euro is down some 9 cents from its high, the USD Index is up some 5% from its low, and the march to higher prices has continued regardless. Such market action is most bullish, as now the precious metals are rallying in ALL, or most currencies.

While the gold market saw new highs during the week, it was sharply knocked back on Friday when the Labor Department announced a truly “blowout” number on job creation in the USA. This resulted in a sharp sell-off of $10 at the lows, to close the week down by only 70 cents. Silver, which has become even more speculative, even more illiquid, and even more dangerous than before, was completely undeterred as more and more speculators continue to chase momentum, was up 44 cents in a most wild fashion. Just on Friday alone, in the course of just 3 or 4 hours, this marker traded to a high of $8.50, only to fall to $7.935. This market has become a most “public” market and most professional traders have exited and seem content to just watch the insanity.

This week also saw some sharp volatility in the platinum and palladium markets when Umicore announced that it had developed new technology allowing the partial substitution of palladium for platinum in catalytic converters for diesel engines. While the reality of such fundamental news may take months or years to develop, speculators quickly dumped platinum (down some $7 for the week) in favor of palladium, up some $15 for the week.

While I have often commented that markets are much more about perception than reality, I have not seen the precious metals markets more nervous than the past week or so. Every flutter of new information, new stimuli, moves these markets mightily. The Commitment of Traders reports below will show that speculative interest in both gold and silver are AT RECORD HIGHS, and I sense that while these markets may indeed go higher, both remain very vulnerable should the long speculators decide to exit.

A significant underpinning of the commodity markets these past years has been the remarkably low interest rates (at 45 year lows) mandated by the Federal Reserve. Investors and speculators have naturally shunned conservative and time-honored practices and have been racing after gains elsewhere. Now that job creation in the USA is turning around, it appears that the market now believes that interest rates will be rising, and much sooner than was formerly thought. IF this perception begins gaining currency, my sense is that it will take the wind out of the sails of this current leg of the secular bull market in commodities in general. While the precious metals have performed most admirably in the market environment of the past years, I strongly believe that the combination of a stronger USD and rising interest rates just may be enough to puncture the bubble. My belief is that Friday could have been a “watershed” event, that it could have marked the “turn” in the perceptions of the market. The next few days will tell us what the market wants to do. If the USD continues to rally, if the precious metals show signs of weakness, I would strongly recommend following that trend, as these markets could retrace a great deal of their gains.

The risk is now to the downside in the gold, silver, and platinum markets and any show of weakness should be followed by astute traders. I would NOT be a buyer on dips in the current market, but would be a seller, as the cascading momentum of speculative selling just may create downdrafts in the markets equal to, or greater than, the momentum recently seen on the way up.

As mentioned, we will see over the next few days. It is possible that the markets may completely ignore the intrinsic perception that higher interest rates are soon upon us, and may continue to rally even higher. But, two to three days of lower prices in the precious metals may be all that we need to convince the enormous number of speculative forces in the markets to give up their long positions.

Another flashing warning sign for the silver market occurred last week when lease rates began to rise some 40-50 basis points. While some analysts may see this as a bullish phenomenon, I see it as signaling some producer selling in this market. It is not clear if such selling, even if it is occurring, will be enough to turn the speculative fervor of this market. Another nasty data point is that from a technical standpoint, gold prices were set back, once again, from the $430 technical resistance level, giving us what appears to be a rather strong “double top”.

The Reserve Bank of India has recommended to the government that it should allow the export of gold bullion, should it become necessary to balance the supply of gold in that nation. I do not see this as a negative in any way, just a further liberalization of the Indian marketplace. India is already a very major exporter of finished gold jewelry, and currently, there is little to no need to export gold in bar form.

There is also a continuing hope among some gold bulls that some Far Eastern Central Banks, notably China and Japan, will inevitably turn to gold with their huge cache of USD as reserves. As of yet, this simply remains a hope, and far from inevitable. Although the percentage of gold reserves held by China and Japan is rather meager compared to their European counterparts, it must be noted that on a absolute scale, these nations have the eighth and ninth largest holdings. Yes, there has been rumblings that the Japanese are considering such moves, but naught has come to it as of yet. If anything, I would believe that the recent resigning of the Washington Accord has made the possibility more remote, as these institutions now see how difficult it is to offload a serious amount of this metal.

 On to the Commitment of Traders reports, as of March 30^th, both futures and options:

Gold Cot Report - Futures & Options Combined
Large Speculators			Commercial		Total
Long	Short	Spreading	Long	Short	Long	Short
164,385	16,744	108,404	125,462	333,414	398,251	458,563
14,404	-6,428	-16,246	-8,329	11,935	-10,171	-10,738
Traders
154	39	68	43	49	221	137
	Small Speculators
	Long	Short	Open Interest		Bullish
	79,497	19,185	477,748		83.36%
	-7,890	-7,322	-18,061
	non reportable positions		Change from the previous reporting period
COT Gold Report - Positions as of				Tuesday, March 30, 2004

-- Posted Monday, 5 April 2004 | Digg This Article