Compiled 05/20/08 6:00 AM (CT)

Statistics: London Gold Fix $907.00 -$1.75 LME Copper stocks 122,650 tons -75 tons

GOLD MARKET FUNDAMENTALS: (6:00 AM CST) While the gold market is starting the session out with a positive tilt, the gold market overnight was probably undermined by news from the World Gold council that 1st quarter gold demand volumes actually declined by 16% from year ago levels! Certainly the overall Dollar value of gold demand in the 1st quarter expanded due to ultra high prices, but in the end the readings were a little conflicting. In fact, some in the trade are fearful that the WGC demand figures are highlighting a reduction in pure flight to quality interest in gold ahead and that is potentially concerning with the WGC also predicting mostly flat Gold jewelry demand in the 2nd quarter. In the end, some traders are suggesting that improved economic views will be slow to resurrect physical/jewelry demand while flight to quality buying of gold will continue to soften as economic confidence returns. However, the bull camp is still hopeful that classic inflation demand will ultimately take over from the flight to quality buying angle and therefore the US PPI report this morning could be a very important longer term development. In a potentially undermining news story overnight, the Swiss National Bank announced that gold holdings actually declined by more than 400,000 ounces in April and that rekindles concerns that the gold market is seeing more supply from the Central banks. Fortunately for the bull camp, the gold market also saw predictions of further gains in Gold ETF demand and the US Dollar is markedly lower in the early going and that seems to leave the bull camp with the edge into the US PPI report.

OUTSIDE MARKET DEVELOPMENTS: (6:00 AM CST) With the US Dollar clearly lower and in fact forging a fresh new low for the move overnight, the bull camp in the precious metals markets would seem to have the initial edge from the currency market front. However, action in the energy complex this morning failed to give off a distinct pattern and early weakness in platinum and copper prices this morning seems to leave the overall outlook toward the metals markets somewhat conflicted. In the end, seeing the Dollar Index reach the lowest level since April 24th would seem to give the bull camp an edge, especially if the US Dollar remains weak into and through the US PPI report release. With some Press outlets predicting the hottest PPI reading in 16 years this morning and the headlines recently flush with predictions and complaints about soaring US inflation, it would seem like the bull camp in gold and silver are expecting an unusually beneficial spin from the headlines and the US Dollar action directly ahead. While the US will also release a Chicago Fed National Activity Index reading along with the PPI report this morning, it is unlikely that the Fed Index reading will take precedence over the inflation report.

Technical Analysis:
Note: Compiled during previous session 05/19/2008 at 3:21 PM CT CBOT GOLD (JUN) 05/20/2008: The market now above the 40-day moving average suggests the longer-term trend has turned up. Positive momentum studies in the neutral zone will tend to reinforce higher price action. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture.

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