OUTSIDE MARKET DEVELOPMENTS:

Chinese stocks were generally higher overnight, led in part by gains in Chinese insurance company shares but Chinese investors were reportedly hesitant to embrace the bull case in stocks because of upcoming Euro zone events. European equities were also weak early today, as the trade was presented with the weakest Euro zone industrial output reading in 2 1/2 years overnight and it goes without saying that tensions are on the rise into this weekend's Greek election. Early US equity market action showed some weakness but the initial action wasn't overly definitive. US scheduled data flows this morning include PPI and retail sales figures, both of which are expected to depict slowing in the US economy.
While August gold was able to post some minimally positive action in the early going today, prices have generally held just below the prior day's high and just below the prior day's closing levels. Gold prices could have been lifted by news of increased Kazakhstan central bank gold purchases, especially as that news was accompanied by confirmation that the central bank had also upped its gold reserve holding target to 20% from a prior holding level around 15%. Tempering the Kazakhstan central bank news was news of an increase in January through May gold output from Kazakhstan overnight. Gold at times this week has displayed classic flight to quality action, but at times it has also been clear that fears of more global slowing have served to tug prices downward on the charts. While some traders are convinced that gold is shifting into a safe haven mode, in the lead up to the very important political junction this weekend in Greece, others think the upward bias in gold prices off the turmoil in the Euro zone, is the result of rising QE prospects which in turn arise from the potential for a material change in the composition of the EU. Another issue that might increase safe haven interest and boost QE hopes in the gold trade, was another rise in Italian borrowing costs overnight. In looking ahead to the US action today, the gold market is expected to be presented with evidence of US slowing from the scheduled report front and while that news could initially pressure gold and physical commodity markets, that news could also increase easing hopes. Comex Gold Stocks were 11.076 million ounces up 68,131 ounces. Despite starting out weaker relative to the prior close, gold has remained close to this week's highs and more importantly, evidence of slowing and or fears of slowing aren't definitively dragging gold down. In other words, gold prices do appear to be in a position to grind slowly higher on the charts because of classic anxiety influences, but near term gains might also be the result of growing anticipation of central bank action. The central bankers know what is ahead and we suspect that EU officials have significant intelligence on the Greek vote and we also assume that the US Fed is equally poised to cushion the global economy against any major negative developments. In short, gold might be poised for a return to levels above $1,625, as the trade assumes easing ahead. We would remain bullish toward gold as long as the August gold contract manages to hold above $1,609.30.