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OUTSIDE MARKET DEVELOPMENTS: With the US Dollar showing more signs of strength this morning and a host of physical commodities under ongoing selling pressure it would seem as if the outside market impact on precious metals prices is set to start out on a bearish footing today. Intermingled with the seemingly bearish outside market influences is a renewed sense of slowing that was accentuated overnight by increased selling interest in Chinese natural resource companies. The markets will see an early US Fed Chairman Speech this morning and since some traders expect the Fed Chairman to hint at the use of extraordinary easing measures, that dialogue might serve to favor the bull camp in gold and silver. With the US also expected to release US Trade balance and Budget deficit reports today, there could be some increased volatility in the wake of the US scheduled data flow.
GOLD MARKET FUNDAMENTALS: At least in the early going today, renewed US financial sector concerns has yet to foster flight to quality buying interest in the gold market. In fact, even with flight to quality buying interest clearly surfacing again in the Yen overnight, the gold market initially doesn’t seem to be in a position to benefit from that angle. Strength in the US Dollar has probably prevented the gold market from shifting back into a financial instrument, especially with the March Dollar index this morning reaching up to the highest level since January 6th. Lingering weakness in oil prices also seems to remain a negative for the gold trade this morning and that in turn suggests that the gold market is potentially being pressured by renewed fears of slowing. In the end, despite somewhat initial upbeat Asian market expectations for gold and favorable India gold demand talk overnight, the gold market in general has remained off balance and weak.
TODAY’S GUIDANCE IN GOLD: While the April gold contract did manage to reject the fresh new low for the move initially overnight, it would seem like gold generally remains out of favor. Surprisingly renewed financial sector concerns have not rekindled flight to quality interest in gold yet and that suggests that the direction of the Dollar remains the primary driving force in the market. However, we get the sense that gold has just about exhausted the downside effort and that increasing turmoil in the US financial sector could ultimately undermine the Dollar and in turn prompt buyers to return to the gold market in the coming trading sessions.
SILVER MARKET FUNDAMENTALS: Apparently evidence of credit troubles at a key North American silver miner is of limited concern to the silver trade this morning, as prices have remained relatively close to the prior session’s lows. However, it is possible that the threat of lost supply off credit problems was mostly offset by news of rising silver production from Pan American silver for 2009. However, Pan American silver was apparently downgraded by an analyst overnight and that would seem to suggest that sentiment toward silver and silver mining shares isn’t exactly favorable this morning. While silver exchange stocks saw a decline overnight that potentially supportive development is mostly countervailed by the rise in exchange stocks in the prior trading session. With the US Dollar showing signs of ongoing strength and a host of physical commodities (namely oil) still off balance, the bear camp in silver seems to have an initial edge today.
TODAY’S GUIDANCE IN SILVER: Extremely critical support is pegged at $10.54 today and the failure to hold that level could set the stage for a slide to $10.30 basis the March contract. In fact, given renewed slowing concerns one gets the feeling that commodities like silver could come back under a deflationary selling wave in the coming trading sessions. However, we continue to think that long term players should view the $10.50 level as a value zone, but in order to get long silver under current conditions, we still think that traders need to wrap up the futures position with long put and short call option wings.
