OUTSIDE MARKET DEVELOPMENTS:

 Equity markets in Asia were generally mixed overnight. European stocks were also mixed but early US equity market action was positive. Overnight the market saw talk that the IMF might be poised to expand its lending capacity by as much as $1 trillion and that might increase confidence in the IMF capacity to assist the Euro zone in its debt battles. The markets saw well attended debt auctions from Germany and Portugal overnight and that looks to have fostered some optimism, which in turn could provide some support to physical commodity markets. The US Dollar has started out weaker against the euro and it was also generally weaker against most of the actively traded currencies. In looking ahead, the US markets will see a PPI report, Industrial Production, Capacity Utilization and a NAHB housing index report. Expectations for the US data call for generally positive readings today but that optimism could be countervailed in the face of debt restructuring efforts in Greece. It is also possible that US debt ceiling wrangling might find its way into the headlines as an influence on metals, but unless there is a surprise extension of the US debt ceiling, that issue might be difficult to shape into a positive for physical commodity markets.
The bull camp is probably heartened by a quasi ongoing pattern of higher lows and higher highs on the charts. The bear camp might remain hopeful as long as gold prices remain below the prior session's highs. In general, the risk on crowd might feel like they have the edge to start today, as Euro debt auctions overnight went off favorably and there is the expectation of positive US scheduled data later on in the US trading session. However, the markets might have to clear late afternoon and early evening action in Greece, where debt restructuring talks are underway. There is also a possible US debt debate standoff in Washington, as the administration is expected to push Congress for another extension of the debt ceiling and that could dampen optimism toward the US economy. After seeing the gold market generally discount physical gold production news yesterday, the gold market might not take too much direction today from news that African Barrick saw a reduction in gold production due to power problems. Some traders are suggesting that the Indian gold duty from earlier this week has dampened volume somewhat, but given stronger US equity market action and a weaker dollar today, the bull camp might feel like they have the edge to start the Wednesday US trade. Comex Gold Stocks were 11.435 million ounces down 27,010 ounces. Stocks have declined 13 of the last 20 days. Mostly favorable news flow and supportive outside market action leaves the bull camp with the edge today. Bullish Chinese gold demand forecasts, potentially favorable US scheduled data flow and solid Euro debt auction action should give the bull camp in gold an added edge. Near term support in February gold is seen at $1,650.90 and then again down at $1,648.20. Up trend channel support in February gold is seen at $1,639.50 today and that level rises to $1,645.50 on Thursday.