OUTSIDE MARKET DEVELOPMENTS:

Asian and Chinese equity markets were weaker again overnight with some measures falling down to the lowest levels of 2012. Clearly fears of global slowing remain in place from last week and ongoing fears toward the Spanish banking sector also remain in place. European equity markets weaker led by sharp declines in Germany, where prices might have been playing catch up to part of the Friday US losses. While there continues to be talk of easing action from either the ECB or the US Fed later this week it would appear that many markets are still poised to move lower until some type of official easing action is seen or until the economic headline flow improves dramatically. Unchanged Euro zone PPI readings for April overnight were probably seen as another sign of weakening and it is unlikely that a US Factory orders report release later this morning will be able to completely alter an entrenched expectation of global slowing.
After last week's surprisingly sharp recovery off the lows, gold prices have been able to hold within relative proximity to last week's highs. However, gold prices are starting out softer and it would appear as if the overall environment has remained negative to physical commodity markets. A weekly business publication touted the flight to quality side of gold over the weekend and that combined with somewhat supportive currency market action this morning could be lending some support to gold prices in the face of weakness throughout the entire metals complex. Weak equities and weak economic expectations are balanced against easing expectations, but that question might not be resolved until later in the week, when the markets expect to see comments from both the ECB and the US Fed leadership. Gold might see some minor support from news that Hong Kong saw a net import/export outflow of gold to mainland China in April of roughly 67,000 kg. Comex Gold Stocks were 10.978 million ounces down 28,681 ounces. Comex Gold stocks are now at the lowest levels of the past 10 sessions. The Commitments of Traders Futures and Options report as of May 29th for Gold showed Non-Commercial traders were net long 101,466 contracts, a decrease of 5,530 contracts. The Commercial traders were net short 124,039 contracts, a decrease of 6,688 contracts. The Non-reportable traders were net long 22,573 contracts, a decrease of 1,158 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 124,039 contracts. This represents a decrease of 6,688 contracts in the net long position held by these traders. A minor corrective bias is in place to start today but the massive rebound last Friday has probably served to knock some gold bears back on their heels temporarily. Fears of global slowing remain in place to start the new trading week and given the short term overbought status of gold, a measure of back and fill action is possible this morning before fresh easing hopes provide additional buying support. Near term corrective support in August gold is seen at $1,620 and then again down at $1,617. Initial resistance is seen at $1,625 and then again at $1,675. While the market was probably overdone at the May lows, the most recent COT report still showed the non commercial and non reportable combined position to be net long 124,000 contracts as of May 29th and therefore one probably couldn't claim the gold market was completely liquidated at last week's lows. In short, more downside action might be seen ahead, as more evidence of slowing is seen before the markets begin to speculate on ECB easing action into the Wednesday time frame.