OUTSIDE MARKET DEVELOPMENTS:

 Chinese stock prices remained under pressure overnight with fresh 2 1/2 month lows posted last night and that liquidation was partly macro economic in nature, but it was also the result of noted weakness in financial shares in that region. European stocks were also lower overnight, as a recovery attempt in mining shares reduced the initial losses in European stocks. However, the European markets were initially waiting for additional direction from an Italian debt auction results as the initial news of the auction results weren't conclusive. Ultimately yields from the Italian debt auction were lower, but those results didn't seem to have a definitively positive influence on global equity markets. US stocks were initially mixed overnight, with the trade generally downbeat on the track of the US economy and many traders were expressing concern from the lack of definitively clear policy hints flowing from the US Fed. The US economic report slate today contains initial and ongoing claims and a revision on an old US GDP reading. Expectations call for a minor rise in claims figures and a GDP reading around +3.2%. There will also be a corporate profits report out early today but that report probably won't have much of an impact on gold and metals prices. However, Italian debt yields might be a tone setting development early today, especially with the markets currently more conducive to slowing or anxiety news, than to positive news of lower Italian borrowing costs.
The gold market remains off balance after this week's high to low slide in prices of roughly $45 an ounce. The bull camp might point to an attempt to trade higher early in the trading session this morning, as a positive, but residual slowing fears in Asia, confusion on the near term direction of US Fed policy and a partial risk off vibe would seem to leave the bear camp with a minor edge. In fact, a minor upward revision to an old US GDP reading probably won't be enough to shift overall macro economic sentiment into positive ground. Therefore, initial and ongoing claims might take on some added importance this morning but those data points could be overshadowed if the US Fed dialogue this morning offers up fresh easing hopes. Gold saw a mixed influence from the overnight headline flow, as a major brokerage firm reduced its gold price forecast, while another entity suggested that gold prices would find support just under the current market from resurgent Indian gold demand. However, a continuing Indian jeweler strike has prompted some Indian gold buyers to stand back from the current market because of near term demand fears. At least to start, it would seem like ongoing fears of further slowing in Asia has put a cap over gold prices and therefore it could take a sweep of better than expected US numbers and perhaps even a distinct recovery in US equities, just to halt this week's pattern of declines on the charts. Comex Gold Stocks were 11.409 million ounces up 539 ounces. While we can't argue against more gradual downside erosion in gold prices, the June gold contract might have fairly solid support on the charts at $1,650. If one were to adjust the net spec and fund positioning in gold for the losses this week, it is possible that further liquidation in gold prices will end up putting the spec long positioning down to the smallest level since early 2009. However, seeing the gold market leveled technically probably doesn't do anything but reduce the magnitude of daily declines that should be expected, as long as global expectations are for more slowing in China and a nondescript economic track in the US. In conclusion, we can't argue against a temporary re-test of the mid March consolidation lows down at $1,644.50. However, on a slide down to that level, we would suggest that the bear camp will begin to see their risk rise rather significantly.