GENERAL MARKET CONDITIONS

Traders will either square off their positions or go long in precious metals, base metals and energies before they go on Christmas and New Year vacations. The current market circumstance is not the one of going short before vacations. There is uncertainty and nervousness on global economic performance in the first quarter of 2008 which will result in investors going long rather than short. Year end window dressing by fund managers and subsequent position building in futures as well as options markets will add to market movement.

Markets are filled with speculation that the bank of Japan may cut interest rates in the first quarter of 2008. Japanese interest rates are already near zero. If they make it to zero, then yen will get weaker and test 117 and gold, silver and emerging equities will zoom. Gold has performed exceedingly well in December so far despite sharp gains in the US dollar and should keep its momentum in 2008.

Interest rate cuts are no solution to growth. Flooding the markets with paper money, ensuring higher valuations for penny stocks which everybody would kick aside under normal circumstances would lead to an even greater bubble over the coming years which should happen from 2010. Global central banks policy of inducing growth through interest rates cuts will backfire. The end result gold and only gold will glitter.

GOLD -- FEBRURAY FUTURE

As long as gold holds $795 the downside will be limited and it will once again target $809 and $814. Falls below $795 bring $790 and $784.

Merry Christmas.-MCXARUN