Precious metal prices came under pressure again yesterday, as the US dollar bounced on news that there will need to be a second European Council meeting next Wednesday in order for France and Germany to arrive at a plan to address the eurozone’s sovereign debt woes. Traders had hoped that this Sunday’s European Council would provide a plan of action – though this has proved overly optimistic.

Given the popular pressure in Europe against bailouts – as elsewhere – and particularly in Germany, which will foot the biggest single share of any new bailout deal, it is unsurprising that negotiations remain tense and fraught with difficulty. German chancellor Angela Merkel certainly cannot afford to give the impression that she is just rolling over to the wishes of other EU members and the banks. More setbacks and brinksmanship are highly likely on the road to some kind of deal.

The October Comex gold contract lost $34.10 (2.1%) yesterday to settle at $1,611.90 per troy ounce. Silver’s decline unsurprisingly outpaced that of gold – with October Comex silver down 98.6 cents (3.2%) to $30.266 per troy ounce. As The Wall Street Journal is reporting, London fund managers’ attitudes to commodities have turned negative for the first time in more than two years amid fears of a new global slow down: “for the first time since February 2009, managers with smaller commodity investments than dictated by their funds' benchmarks outnumbered those with relatively bigger positions, according to a poll of 286 investment managers controlling a total of $739 billion.”

Of course, we all know what happened to commodity prices after February 2009. The low for commodities in February 2009 was around 317 on the CRB Index. Today, and despite the steady decline in commodity prices since the spring of this year, the CRB Index stands at 507 – a 60% gain from February 2009. Thus, if we were to use trend-following fund managers as a reliable contrarian indicator, now would seem to be a good time to go long commodities.

COT data on gold and silver remains very bullish, while Rosenthal Capital Management notes that the recent record dumping of US Treasuries by non-US investors is also bullish for gold. As the chart they show on their website illustrates, there is a correlation – albeit imperfect – between advances in the gold price and foreigners’ selling US Treasuries, with advances in the yellow metal’s price coming after bouts of Treasury selling.

Thus, we could again be in for some advances in gold and silver prices.