I actually liked the action yesterday.......

In what was an absolute dreadful day yesterday, I actually liked the action in gold. The dollar was flat (after bouncing off 73.5) oil was down (small profit taking) and the market was absolute dreadful. Yet, gold managed to be up about $8 in the April contract, hitting a new high. That is very impressive!! I mean, don't get me wrong, gold had to fight tooth and nail for each tick higher, as I still think it is being capped. However, with each nice day like this, the bears (and DA BOYZ) are running out of steam. (And remember even though I called for gold to dead money until the IMF sales are through, I did say if something out of left field happens, gold would go higher---the dollar breakdown qualifies.)

However, as good as gold was, silver is the king here, as the May contract actually touched $20 ($20!!) for a nano second before closing at $19.91 for the day. Very impressive indeed.

I am going to cut the gold stocks a break, as they acted pretty bad in spite of gold being $8 higher. But, as the market was down 300, buyers weren't in the mood to go home long anything over the weekend. I think it was more of a lack of buyers in the gold stocks as opposed to outright sellers swamping the market. During the rare time the market tried to rally yesterday, the gold stocks had an even nicer rally. And when the market was in the depths of a huge downswing, the gold stocks went down begrudgingly.

In bond land, things have gone from horrible to frightful. There were three large hedge funds that were liquidating municipals. On good quality, AA rated paper, bids were at a 6% yield, which is some 160bps over Treasuries. Normally, munis trade at 10-20bps UNDER treasuries. This was the highest spread in history.

I used to sell munis for a living. If I was still doing that, I would be buying with both hands and both feet. You don't get opportunities like that everyday. A few years back, there was a credit crunch in the corporate bond market that sent spreads skyrocketing. I was buying good quality names at anywhere 9%-14% for 1-4 yr maturities. However, my biggest score was buying Time Warner bonds on the long end of the curve at a yield of 21%. My clients literally made millions of dollars as within three months those bond yield came back to their normal yields. At some point I would expect the same for the munis.

You will start hearing about ALT-A paper shortly. This is a class of mortgage that is a step up from subprime. ALT-A paper is now trading around .60 on the dollar, and will prolly only get worse.

So, bond land is a disaster and only getting worse, oil is at record highs, the dollar is at record lows, stagflation is running rampant, gold is at a record (but still way undervalued, especially at an inflation adjusted price of $2100) and the FED pretends all is well. I have never seen the economy this FUBAR.

I am not going to try and predict where gold is going to go this week as a number of things could happen from the entire financial complex melting, including gold, to the entire financial complex melting, except gold. Gold could skyrocket or gold could crash, so that means it will prolly tread water. LOL.

I will say though that jobs Friday is this week. Historically, when the jobs number comes out and it is terrible (which should also be this month's story) gold does very well in the early going as the dollar gets crushed. Then somehow, by some miracle around 1/2 hour after the number, both reverse hard so gold gets absolutely demolished and the dollar shines. How this happens I will never know as we all know the markets are free and balanced. (choke, cough, choke, choke, cough.)

One other thing I am hearing that I like is that you are starting to get the top callers in gold as many are saying this run can't last, it's getting long in the tooth, etc. etc. This is a good sign because as usual, all highways lead to gold, and gold is thinking about getting on a rocket ship. (But be wary of the IMF sales , or talk thereof and jobs Friday.)