Gold and silver daily commentary (October 08, 2010)

By Nell Sloane While equity markets in Asia were mixed, stock markets in Europe are generally weaker this morning. U.S. stock indices are moderately lower during the early Friday trade. The Dollar is slightly stronger against most of the major currencies again during overnight trading. The Japanese Finance Minister stated they will continue to intervene in the currency markets, if needed. A credit ratings agency has placed China on review for a ratings upgrade of their sovereign debt. G20 Finance Ministers will have a breakfast meeting this morning as part of the IMF/World Bank meetings this weekend, with G7 leaders meeting for dinner in the evening. The German Foreign Trade surplus during August was 11.7 billion Euros, lower than estimates. The UK Producer Price Index during August was up 4.4% year-on-year, lower than forecasts. Swiss Unemployment during September was 3.5%, lower than expectations. Today's major US economic indicators includes September Non Farm Payrolls, September Private Payrolls, September Unemployment Rate and September Average Hourly Earnings at 7:30 AM, as well as August Wholesale Trade at 9:00 AM. In addition, Fed Governor Tarullo will give a speech this afternoon. GOLD MARKET FUNDAMENTALS:

While the gold market showed some modest downside follow through overnight, that isn't surprising considering the aggressive nature of the setback that was seen yesterday afternoon. Some gold players suggested that the reversal was the result of a bounce in the Dollar, while others suggested that the change of fortune was the result of better than expected US jobless claims readings which in turn reduced the odds of US QE2. Some Press outlets claimed the better than expected jobless claims figures served to reduce economic uncertainty and anxiety. One might have expected gold to benefit from news overnight that Gold Fields managed to oversubscribe a debt offering of $1 billion, as that highlights ongoing investment flows toward metals instruments and might also be a sign that even more hedge lifting could be seen ahead. While the gold market was already aware of the potential for Vietnam gold imports from early in the week, news that Vietnam was allowing certain banks to import gold might be something that favors the bull camp this morning. owever, the market is clearly poised for a big reaction to the US payroll readings, with some in the bear camp pulling for good numbers. However, the Dollar has managed a slight bounce off its lows from the prior trading session and some traders are suggesting that continued short covering in the Dollar ahead of this weekend's G7 meeting will be seen. Comex Gold Stocks were 10.960 million ounces, down 32 ounces. The sharp pullback on the charts yesterday certainly reduces the overbought status of the gold market into the critical report this morning. While we think that the uptrend in gold will ultimately resume, we got the sense that the market was pretty close to a "perfect storm" at this week's highs and therefore it will be difficult for the market to reach back to the highs without some further consolidation, or perhaps even some additional downside action. To the high yesterday, December gold from the last COT report managed a very big rally of $58 an ounce, and that had to pump up the coming positioning readings. Unfortunately, uptrend channel support in December gold isn't seen until the $1,302 level today, with that support only rising to $1,305 on Monday. A more logical correction point is seen at the 50% retracement of the Sept/Oct rally at $1,321. SILVER MARKET FUNDAMENTALS: