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LONDON STATS: London Gold Fix $795.50 -$18.00 LME Copper stocks 291,200 tons -450 tons
COMEX STATS: GOLD stks 8.51 ml oz Unchanged SILVER stks 128.5 ml oz -10,514 oz

With the Dollar and Yen showing renewed flight to quality buying interest this morning, it would appear that the currency impact on precious metals prices has turned negative again. It would also seem like renewed slowing fears have surfaced again and that in turn seems to have rekindled deflationary pressure on a host of physical commodity markets. In fact, with crude oil prices showing a rather significant downside effort in the early going today, one gets the impression that talk of a “deflationary spiral” is going to be back in the headlines this week. With the US economic report slate this week extremely active, the metals markets look to be presented with an avalanche of data and from the expectations on the US reports, it could be difficult to ignore the state of the global economy. In fact, with the market seeing fresh evidence of slowing from the Chinese economy overnight, about the only positive outside market force operating in the headlines today is the prospect of more global central bank interest rate cuts ahead.

MARKET FUNDAMENTALS: Apparently the renewed flight to quality interest in the gold market continued to fade overnight with international gold markets under pressure overnight. In fact, to the early lows this morning, February gold has already fallen by as much as $44 an ounce off last week’s high. Some traders overnight suggested that the prospect of severe weakness in global equity prices ahead sparked selling interest in gold this morning and that clearly suggests that gold has drifted back toward a physical commodity market status again. Apparently news of lower South African gold production from last week is forgotten and the gold market has become concerned about renewed deflationary selling pressure. With the Dollar and the Yen exhibiting fresh flight to quality concerns this morning, it is somewhat clear that gold is being excluded from the flight to quality angle. With February gold to last week’s highs reaching as much as $134 an ounce above the November lows, some traders are suggesting that the gold market was overbought technically and in need of a corrective setback. With the COT report delayed due to the recent US holiday, the trade was probably spared the real evidence of the overbought status in the gold market from the weekly positioning reports.

TODAY’S GUIDANCE: Given the strength in the Dollar, the expectation of weak US numbers and the prospect of renewed deflationary psychology, we suspect that February gold is at least headed back down to $775 and perhaps even down to $750 later in the week. In fact, it could take a series of coordinated interest rate cuts or evidence of an epic breakdown in the equity markets to shift the gold market out of its negative bias this week.

This content originated from – The Hightower Report.