By Jon Nadler
A lackluster morning dragged on into the afternoon hours in the commodities complex today, with little more than mixed results showing in various pits. Copper was off some 3%, along with lead. Nickel did okay, while oil fell by nearly $1. Gold gave up early gains to return to near-unchanged, while silver fell to under $10. Platinum cut some of its earlier losses, but was still down $20 at last check, tripped up by news that the Japanese economy shrank at an annual pace of 1.8% in Q3.

Economists estimate a possible 4 to 5 percent annualized Q4 contraction for the US. Most of the action was confined to the Dow, where the bearish economic signals continued to motivate more people to sell than to seek bargains, and made for a near 250-point drop.

Gloom was in the news at firms ranging from Sony to Samsung, and from Texas Instruments to the Tribune Co. Bankruptcy attorneys project a wave of Chapter 11 filing to still be in the pipeline. The EIA sees oil prices averaging $51 next year, while the price of gasoline is projected to average $2.03 per gallon. Even that bargain price will not be sufficient for the US automakers to avoid the unavoidable change they must put into motion lest they are to go the way of the horse buggy. Their fate was not decided today either, but a $15 billion string-laden package is expected to be hatched tomorrow, complete with zero bonus schemes for executives and partial government ownership.

The US dollar slid earlier in the morning, but aimed for a return to the 86 level on the index in the early afternoon. A quick glance at Kitco's amazing new iPhone application "Kcast Gold Live" while on the run through the airport, revealed the following metals price data: gold up $0.40 at $771.80 per ounce, silver down 20 cents at $9.77 an ounce, platinum off $20 at $810, and palladium unchanged at $174 per ounce. Rhodium was down $165 at $985 per ounce. No need to be tethered to a desktop with this snazzy feature from Kitco. It alone, might just make you decide to buy an iPhone for the holidays.

Gold market players continue to keep a sharp focus on stocks as the correlation to them has been relatively strong of late. As well, attention continues to be paid to the last couple of weeks of 'real' trading in the dollar and in oil, as the year winds down.

Gold bugs, on the other hand, will be paying special attention to...tomorrow. The day when the IMF is supposed to unload 3,000 tonnes (!) of gold onto the already strained bullion market. A reader forwarded excerpts of an article from an as yet unverified source (perhaps Stockhouse) which argues that an analyst has gotten the idea that such a sale is about to unfold.

While we do know that the IMF has slated over 400 tonnes to be eventually mobilized (in a plan that was first floated in February), such a disposal has yet to take place. In addition, the IMF also indicated that any such process would be conducted in a manner that would not disrupt the market itself. But, what to make of this then?

"Michael Bolser, a trained physicist who developed dollar value commodity indexes and 10 months ago correctly forecast the scope of the current recession, expects more than 3,000 tonnes of gold to flood the market this week. Bolser, based in Florida, says the International Monetary Fund will release the gold for sale on Wednesday, Dec. 10. The 64-year-old Bolser says the price of gold subsequently will slide as much as 40 percent – to $455 an ounce in coming weeks from its current $760 an ounce."

Well, you only have to wait one day to find out what substance (if any) this story has. Frankly, if such a sale was sniffed among the pros, we would be seeing an advance bailout of more significant proportions already. On the other hand, a story that has some degree of market validation behind it, is the usual thermometer check of the contrarian crowd by Mark Hulbert over at Marketwatch. He finds that:

Two weeks ago, when I last focused on the prevailing gold market sentiment, I reported an uncomfortably high level of bullishness among the editors of gold timing newsletters. As a result, I wrote that contrarians considered it "unlikely" that the rally in gold that was then two weeks old "will meet any better fate than other rallies of recent months." In the wake of that column, as we now know, gold bullion fell by some $70 per ounce, hitting a low last Friday of just above $750 per ounce, before jumping $17 on Monday.

Unfortunately for those who are bullish on gold, the sentiment picture is today less favorable than two weeks ago. Consider where the Hulbert Gold Newsletter Sentiment Index (HGNSI) stands. The HGNSI reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. As of Monday night, the HGNSI stood at 37.9%.

To put that reading in context, consider that two weeks ago, when bullion was some $50 per ounce higher, the HGNSI stood at 30.7%. So, in the wake of a net drop in bullion's price of around $50, the average recommended gold exposure level has jumped by more than seven percentage points. That's unusual, and significant. The typical pattern is for sentiment levels to rise and fall in step with gold itself. When it does not live up to that pattern, it suggests that investors are adhering to their positions with an abnormal amount of stubbornness. In such cases, contrarians believe it to be a warning sign that the position being stubbornly held is likely to be proved wrong.

So, as I did two weeks ago, I conclude from a contrarian analysis of gold sentiment, that any rally that begins from current levels is unlikely to meet any better fate than other recent rallies. When my previous columns reached a more or less similar conclusion, many reacted with incredulity: How can one not be bullish right now, given the inflationary consequences of the federal government's bailout of the financial system -- and apparently, as of this writing, the automobile industry too?

But the issue at hand is not whether those federal bailouts will be inflationary. They undeniably will be. Instead, the issue is whether that inflationary potential has already been discounted into gold's price. If so, then gold's price in theory should go continue to go up only if and when there is any surprise revealing that potential to be even greater than previously thought. That's a far different question, of course.

Another theme that emerged from the comments to my previous gold columns is that the gold-market sentiment doesn't cause the market to go up or down. Instead, the argument goes, the trend of gold's price is being determined by hugely more powerful global forces. Indeed. But contrarians typically don't argue that sentiment determines the longer-term trend. Instead, sentiment measures help you to determine whether the current price is above or below that trend -- regardless of its direction.

And, at least according to my contrarian analysis of gold market sentiment, gold right now is above that longer-term trend. In the end, of course, the proof of the pudding is in the eating: And my econometric tests show that the gold market performs better when the HGNSI is lower than when it is higher. But, because sentiment is at best a short-term market timing tool, the conclusion I am reaching here is consistent with the longer-term trend being up. But, if the conclusion of my analysis is correct, the gold market will have to wait a while for that longer-term trend to catch up with where gold is now trading."

Last we heard, Elliott Wave analysts had also concluded that price declines in gold were not yet finished, and Merv Burak's technical indicators had also not changed course over the past week - as regards long-term projections. None of the above assures that the metal will in fact drop to $630 or to the eventual $450-$480 that is being talked about. Much (if not almost everything) depends on the dollar. At the moment, one can safely ignore oversold this, and overbought that - the obsession is with but one thing: capital preservation.

Our conclusion following the trip to China is that it, and the US, are inexorably interdependent at this time, and for the foreseeable future, for a dollar collapse to be remotely plausible. President-elect Obama will likely adopt a more benign approach to dealing with China as it looks to its near $2 trillion to help pull the world out of this credit swamp. However, China is itself looking to the US to help it weather the storm that could derail its grand ambitions and affect its leadership. We will have more on the Chinese economic picture tomorrow.

And thus, it goes for gold prices as well. " Eppur Si Muove "

Jon Nadler is Senior Analyst, Kitco Bullion Dealers Montreal