SILVER

March silver overnight returned to the prior session's high but then reversed course and forged a new low for the week. Apparently gold and silver were somewhat disappointed with the lack of aggressive EU action and perhaps silver was also undermined as a result of very weak Euro zone employment figures. The bull camp in silver has to hope that a flurry of scheduled data points today will foster some optimism toward the US economy but that might only dampen the initial downside tilt in silver prices. In other words, news that the US economy is holding together is supportive of silver and other physical commodities, but there is the constant fear that a collapse of the Euro zone will derail US momentum. At least in the early action, silver wasn't cheered by the latest EFSF rumor flow, but silver is likely to catch a slight bid through today's US scheduled data window. The silver market might also get some support from news that the Chinese cut their bank reserve requirement overnight. It is also possible that silver will derive some afternoon support from the Fed Beige book release, which might offer more confirmation of forward movement in the US economy. Comex Silver Stocks were 108.192 million ounces up 869,115 ounces. A weak technical trade to start gives the bear camp an initial edge. In fact, the inability to forge an upside breakout this week has really injured sentiment toward silver and that could mean a failure to hold above $31.01 could prompt a wave of long liquidation pressure. In the end, we just don't like the action in silver this week, it isn't rallying on positive news and it is testing critical support levels in the wake of minor bearish developments. However, one might expect a slight attempt to bounce in silver through the flow of scheduled US data this morning.

OUTSIDE MARKET DEVELOPMENTS:

 

While equity markets in Asia were mixed during overnight trading, stock indices in Europe are generally lower this morning. Early indications are that US equity markets will open with moderate gains later on today. The US Dollar is stronger against most of the major currencies this morning. Euro zone finance ministers agreed on plans to leverage their emergency bailout fund but they were not specific on the new expanded size for the fund. A major credit rating agency lower downgraded several of the largest US and European financial institutions by one level. Japanese Housing Starts during October were down 5.8% year-on-year, a smaller decline than expectations. Japanese Industrial Production during October was up 2.4%, higher than forecasts. German Retail Sales during October were up 0.7%, higher than expectations. German Unemployment during November was 6.9%, lower than projections. Euro zone Inflation during November was 3.0% year-on-year, in-line with estimates. Euro zone Unemployment during October was 10.3%, in-line with expectations. Major US economic numbers to be released this morning include a private survey of Private Employment at 7:15 AM, third quarter Productivity at 7:30 AM, a private survey of Consumer Confidence at during November at 9:00 AM, a private survey of Chicago area manufacturing at 8:45 AM, a private survey of Pending Home Sales at 9:00 AM, and a private survey of mortgage applications released before the opening.
The gold market was initially undermined by news of a widespread bank downgrade overnight, by the lack of an aggressive EU bailout package and perhaps even because of a record high Euro zone jobless figure. However, gold might derive some support from an extremely active US scheduled report slate, especially with the trade expecting positive private jobs news and a minor rise in Pending home sales figures. Apparently gold didn't see much in the way of support from news that gold was picked as a top commodity in 2012 by a major US brokerage firm. It is also possible that adverse initial currency market action and a choppy US equity market trade is serving to undermine gold prices to start today. However, it is likely that today's US numbers could foster a measure of optimism toward the economy, but as long as the Euro zone debt threat hangs over the US economy, markets like gold could remain choppy and off balance. Prior to the reversal overnight, February gold did manage to reach the highest level since November 18th, but apparently the failure to see really aggressive action from the EU prompted some longs to bank profits and move back to the sidelines. In looking forward, scheduled data from the US today might provide some buying interest, but without a strong equity market recovery, the bull camp in gold might not be able to dominate the Wednesday US action. Comex Gold Stocks were 11.235 million ounces down 32 ounces. Gold stocks have declined in13 of the last 20 days. At least to start today, the bear camp has a minimal technical edge. However, we suspect that February gold will find close-in support around the $1,700 level, especially if the scheduled data this morning meets or exceeds expectations. In order to throw off the bearish tilt in gold this morning probably requires a very positive reaction to the Challenger figures early on or to the ADP figures later on in the session. Up trend channel support in February gold is seen today down at $1,684, but that support level rises to $1,687 on Thursday.