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Good morning. The precious metals are lower in early U.S. trading. U.S. calendar features Housing Starts, & Industrial Production (+0.5% expected).

FedSpeak due from Jefferson, Williams, Barkin, & Powell.

With gold and silver prices significantly higher overnight in the face of a very significant upward thrust in the US dollar, it is possible the markets are beginning to aggressively embrace flight to quality buying from rising economic concerns toward China.

In fact, overnight Chinese import, and export readings came in significantly below expectations which facilitates more anxiety toward an economy thought to have serious problems.

It is also likely that rising concerns of financial pressures on developing countries are fostering flight to quality buying of gold and silver in anticipation of a financial crisis in the emerging market sector...[MORE]

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Identifying where the gold buying is coming from is essential as not all buying is equal.  

In strong hands such as central banks with a multi-generational view, the rally is 'high quality' and unlikely to be reversed, but with weak hands such as short term speculators, the opposite may be true. Two opposite outcomes.

And we are pretty confident we know who is behind the move...[LINK]

ZM Comment: The rise in gold, in the face of countervailing fundamentals has been vexing the market for several weeks now. Ross Norman offers an interesting theory on where the buying is coming from.

With the dollar this morning forging another higher high and reaching the highest level since early November, the currency impact on gold, silver, and copper remains negative.

Likewise, US treasury yields remain a burden with yields reaching the highest levels since last November with another higher high overnight.

While it is not clear what the direct ramifications are on gold prices, a precipitous decline in Chinese Consumer Price Index readings for March overnight suggests the Chinese economy is doing very poorly which could be a double-edged sword...[MORE]

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While gold has not managed a new all-time high this morning, both gold and silver markets remain just under this week's highs.

We suspect the downgrade of China provides a measure of flight to quality buying. However, China is also the largest consumer of gold, and the last mainland China gold import tally showed a month-over-month reduction of almost 50% and therefore the downgrade could injure classic physical gold demand expectations.

In a sign of volatility potential in the current market, the Shanghai Futures Exchange implemented trading limits on gold and copper starting Friday...[MORE]

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