OUTSIDE MARKET DEVELOPMENTS:

 Equity markets in Asia were generally lower during overnight trading, while stocks in Europe showed more losers than winners at the start the Wednesday trade. Early indications are that the US markets will open with minimal gains later on today. The US Dollar was slightly weaker against most of the major currencies this morning but was making some minor gains versus the Canadian and Aussie. In the overnight action the markets saw positive Japanese October Industrial output figures and OPEC appears to have come to some agreement on production. The market also saw a Euro-era high yield in 5 Year Italian debt that was auctioned off early this morning. In other developments the UK saw its November Jobless claimants increase by 5,000, with that total unemployment level reaching the highest level in 16 years. The third leg of the Treasury's refunding, the 30-year Note auction, will have results announced today at 12:00 PM. Major US economic data to be released this morning, includes US Import/Export prices and a weekly mortgage application survey early in the trading session. The market will also see a speech from the Atlanta Fed President Lockhart today.
February gold was probably short term technically oversold after the sharp downside plunge in the prior two trading sessions and that might be part of the reason behind the fleeting attempt to bounce this morning. However, gold seems to generally be favoring the weaker side of the equation today, as the fear of a prolonged Euro zone debt crisis remains in place. Gold might also be seeing some pressure from news that a well known commodity analyst now appears to have turned patently bearish toward gold prices. Gold might have drawn some support from the promise of pro-growth policies from the Chinese overnight but until the PBOC actually displays an accommodating stance, the trade might not buy into that type of thinking. More than likely, gold was specifically undermined by news that an Italian 5 Year auction overnight posted a Euro era high, as that prompted some analysts to suggest that Italy won't be able to sustain that level of borrowing costs without outside assistance. The FOMC meeting yesterday also seems to have left the gold market weak, as the Fed wasn't as close to offering additional assistance as was hoped earlier in the week. In fact, the Fed forward growth outlook appeared to be behind at least part of the declines in US equities yesterday and also perhaps it was also part of the reason for the slide in gold prices yesterday afternoon. A minor new low for the move in February gold early this morning, would seem to suggest that the bear camp has maintained control over gold prices, even if the market periodically needs to rebalance its charts. In looking forward, the gold trade might see strong demand for the 30 year bond supply later today as just another sign of ongoing concern toward the Euro zone and in some ways that action could also be seen as a sign that the US economy is headed toward further slowing. Scheduled US data today is 3rd tier data and doesn't look to be the variety to dramatically alter market sentiment. Comex Gold Stocks were 11.293 million ounces down 365 ounces. Stocks have declined 11 of the last 20 days. The bears generally maintain control into the start of the Wednesday trade, despite initial minor gains in US stocks and only minimal weakness in the Euro. With a highly quoted gold analyst turning outright bearish toward gold prices in the near term, February gold prices reaching the lowest level since October 21st overnight and the last COT report pegging the net spec long positioning in gold to still be 225,000 contracts, there would appear to be more long liquidation potential ahead. In fact, without a sudden improvement in global economic hopes, it could be difficult for February gold to avoid a retest of the sub $1,600 level. Some traders think that it will take a definitive breakdown of confidence in the Euro zone just to send February gold prices below $1,600 and down to the September spike low below $1,550, but we think gold is poised to erode consistently and that a sub $1,600 price will be seen soon.