Good Day,

Gold prices stabilized somewhat in the overnight markets after having fallen to their weakest level in over two weeks yesterday. The unwinding of speculative positions that followed the metal's inability to keep pushing higher engendered technically-induced stop-loss selling and brought bullion down to very near the $1100 level that we had been assured we will not see again this season. Well, it turns out that we did see a sub-$1100 per ounce print already this morning...

Whilst no single factor was identified as the catalyst for the sharp slide, several analysts opined that the recent Chinese statements regarding the country's unwillingness to please the perma-bulls by loading up on massive gold tonnage for its reserves may have certainly played a significant role in the waning of bullish sentiment in the market.

Adding to the dissipation of such sentiment were euro-Greece-EC-flavoured news, or we should say, the absence thereof - which gave speculators additional confidence that the crisis may be finally abating despite concrete, headline-worthy solutions. The markets certainly did not appear to be concerned too much about the news that many a Greek hospital, airport, or school was shuttered, or that the Greek police had run-ins with strikers.

Bloomberg reports that Greece's unions staged the second general strike this year against government budget cuts to curb the European Union's biggest deficit. One small detail worth noting as these protests roll on: demonstrators in Greece hurl marble slabs at police. Now there is a classy departure from the mundane rock-hurling seen in other countries... Finally, the one item we mentioned as early as yesterday morning - China's rising imports of 'stuff' also gave rise to certain fears about that government's possible tightening of various monetary screws intended to avoid things from bubbling over into a frothy mess.

This morning's price action in New York was reflecting continuing selling pressure and brought the $1095 support zone into the crosshairs once again. While the gold market opened with only a minor $1.20 loss (at $1107) the selling soon reignited and pushed values to $1099.50 -chalking up an $8.70 loss and touching a level not seen since the 24th of February.

Thus, instead of chasing the January high target of $1162.50, the yellow metal now finds itself hoping to be able to maintain the $1100 level and prevent a fall towards the mid-$1K's, all while searching for those ever-welcome bargain hunters, be they from Mumbai, Dubai, or Shanghai. Or, perhaps, even from nearby Wall Street.

Many of Wednesday's sellers however were spec funds cashing in on recent profits. At this point, we expect the high $1090's -$1100 area to indeed be able to provide support, but the market appears in no mood to have to digest further unfriendly news. Like, say, some IMF tonnage coming to the open market in a small tranche. In any case, let's see that Indian buyers show us over the weekend. Deal, or no deal?

Silver opened with a 2-cent loss at $17.01 and then slipped towards $16.90 per ounce as sellers of that metal also made their presence felt this morning. Prior to yesterday's action, the white metal was showing a pattern that gold failed to confirm and -according to Elliott Wave analysis- might now be poised to lead a downtrend reversal in prices. Look for a break of $15.59 and an eventual objective of under $14.63 per ounce, say analysts at EW.

Platinum started the session with a $14 drop this morning, quoted at $1579.00 per ounce, while palladium fell $12 to $450 the troy ounce. No change was reported in rhodium's spot bid - still at $2400.00 per ounce.
The US dollar was not showing any significant changes as of the time the markets opened in the precious and noble metals. The dollar index was actually off by 0.02 at 80.39, while the greenback traded at 1.365 against the euro. Crude oil slipped about half a dollar, to trade at $81.67 per barrel, as the aforementioned Chinese tightening-related apprehensions resurfaced.

Within the first hour of trading however, the dollar advanced to very near 80.50 on the index, as falling US unemployment filings and a narrowing trade deficit figure dented sentiment in commodities anew. Once again this morning, we were on the receiving end of stories alluding to the possibility of imminent Chinese tightening on the back of recent statistical reports showing that whiter shades of hot as still the colours being sported by country's economy.

Inflation in China also picked up last month, reaching an unwelcome 2.7% rate-also not a good omen for continued stimulus measures to remain in place. No such luck for Japan however, whose GDP for Q4 shrank at a 3.8% annualized rate.

Japan's GDP deflator showed a 2.8% annualized decline. Japan is plodding through its worst deflation on record and fears are rising that the lost decade might turn into the lost quarter-century if things continue on their current path. There is such a thing as desirable levels of inflation -as one politician was heard hoping for on local television not long ago...

As for US television, well, depending on your preferred news outlet, the story is that Mr. Obama is utterly destroying the country, the currency, and that the stock market is about to fall to (pick your favorite target number) 1000, 3000, 5000 - and meet the price of gold itself, no less. Convinced? Think again, and think hard. Or, simply read the following story, courtesy of Bloomberg. A few...surprises may be in store. Herewith, just a few, teaser highlight quotes:

Laszlo Birinyi will never forget the moment a year ago when the last ounce of confidence disappeared. At turning points, the mood is always in one direction, says the 66-year-old Birinyi, who characterized the total conviction of pessimists as the start of an advance that would end up making Barack Obama's first year in office the best for shareholders in 76 years. What's more, the Standard & Poor's 500 Index, which gained 69 percent in the past 12 months, is nowhere near its peak in a rally that may persist through the next presidential election, he says.
The advance that started a week after Obama called U.S. stocks a potentially good deal for long-term investors is too young to end now, according to Birinyi. The average bull market since the 1960s has lasted more than 1,000 trading days, compared with 253 for this one, data compiled by Bloomberg and Birinyi Associates show.
I'm very struck by the level of bearishness everywhere I go, said [investor] Barton Biggs, who predicts the next move in U.S. stocks is a 10 percent to 15 percent gain. I'm not obsessed with history. I'm bullish because I think the global economic recovery is on track and is going to be surprisingly strong. The world was falling apart in 2009. There's been a tremendous change.
Birinyi says this bull market may last more than 1,023 trading days, the historical average, putting its end after April 2013. Customers of his firm have pushed up assets under management to about $300 million from $200 million in 2007 after his prediction for gains came true.

Yes, the above are both starkly contrasting views such as those being offered up in heaps by folks such as Richard Russell, Peter Schiff, and others of similarly pessimistic leanings. However, there should be sufficient room out there to take Birinyi and Biggs into account as well. After all, the two have made quite a name for themselves at this game. Not quite the caliber of, say Carlos Slim - the employer of more than a quarter million Mexican workers- but rich enough (and obviously savvy enough) to count. That said, nothing says you now must dump your core 10 percent gold holding in order to go out and buy some stock you just learned about. It's all about holding a variety of assets for different objectives. Playing it safe never goes out of style.

Happy Buy and Hold, or Happy Buy and Trade -as the case may be.

Jon Nadler