Finally, it seems that the breadth and depth of Japan's monetary stimulus has reached the brains of precious metals traders. It took some wading through a bit of currency volatility, but the outcome can be seen by the take-back in price fro yesterday's swoon. Likewise, Europe is again coming into focus as the problem child in the world economy, pushing up the value of the euro (counterintuitive, of course) and creating a dollar decline against all in the major currency basket. Rumors are beginning to circulate that Greece cannot stay with the euro past 2013. While this is bad news for Greece, it is probably good news for the rest of the E.U. It may be that the euro will slim down its membership by peeling itself like an onion one incapacitated economy at a time, until it is pared down to Germany, France, Italy, the Benelux countries, and promising new economies in the eastern part of the union.
Gold and silver traders need to keep a close eye on first quarter earnings report. The consensus (with which we are in agreement) is that profits will be squishy at best. It may take a major player such as Wal-Mart or a transportation issue to show a meaningful setback that could trigger a larger sell off. Once money starts to leave equities it only has a few places to go. Dollar-denominated instruments showed strength today and some traders and investors were caught scrambling to make short covering bets on gold and especially silver. Silver tends to benefit more from currency volatility once the pendulum swings its way.
There is still a cautionary trend in the precious markets, regardless. Not that it can't or won't be overcome.
"Many are simply undecided and the short sellers still smell the potential for a major reward should this weakness continue," said Saxo Bank Vice President Ole Hansen. "Buyers have become a bit disillusioned, with many probably preferring to sit it out until we make a move back above $1,620." The next big news generator will be Wednesday's release of the March Federal Open Market Committee minutes. The FOMC minutes, as we have implied before, are usually old news. But some traders will sift them like the entrails of a goat for omens, warnings and to learn just how twitchy they should be.
If anything, the March labor report argues loud and hard for the stimulus to continue 'til further notice.
As always, wishing you good trading,
The Gold Forecast