GOLD UP WITH EURO

Gold is nicely higher this morning, as the Europeans seemed to have worked out an agreement to resolve the Greek debt crisis. However, whether the agreement is fully effective remains to be seen. It will depend on the ability of Greece to float its bond issues. The euro is stronger and that caused the dollar to weaken this morning, which has helped to support the gold and silver markets. Moreover, last week we saw gold pushing back through resistance levels, which encouraged more technical buying this morning. We also hear that experts anticipate that gold demand in China will increase dramatically over the next 10 years and that demand in India likewise will continue to increase at a very aggressive pace. With the wedding seasons in Asia and India now approaching, the expectation is that the demand for gold will be substantial as there are likely to be more weddings this year.

That is among the reasons why Merrill Lynch has now indicated that they see gold making a substantial move upward in the next two months. They stated, "The start of the next Indian wedding season (March through May) should provide a boost for jewelry buying, possibly pushing bullion back over $1,150/oz by April - May." "...We think bullion could ramp back to the $1,150 to $1,200 range by October November due to a rebound in global jewelry demand." Remember, Goldman Sachs continues to hold its forecast of $1,390 an ounce over the coming year and BofA continues to forecast $1,500 over that same time frame.

In addition to precious metals being higher, oil is likewise up $2 at $82 a barrel. The equity market is higher, up 45 points on the Dow. The dollar is down 4 basis points. Silver has posted a very nice gain, up $.37 with gold up $4.

There is also considerable focus on the debt of the United States government. Our deficits and debt are growing at an unprecedented pace. There is growing concern that it will be increasingly difficult to finance that debt at current interest rates. Last week we saw upward pressure on rates and rather weak participation in the debt market by foreign holders. China and Japan did not participate. If that were to continue we could see interest rates begin to move more rapidly to the upside, which would have a significant impact on all of the markets. It would also produce rising inflation, as the dollar would continue to decline. Some think that the dollar may actually have topped out and that it is now long overdue for a significant pull back. That would be particularly bullish for the metals.

Looking at the supply/demand situation with China, their supply as been declining while demand is increasing. The World Gold Council said they may be required to import significant amounts of gold over the next decade. The situation with China and India, along with other emerging nations creates a positive outlook for the metals market.

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