Thursday, March 10, 2011

Gold And Silver Break Lower On Chinese Trade Deficit News

Stocks drop on Libya, surprise Chinese deficit
LONDON (AP) -- The battle for control of Libya and weaker than expected Chinese economic data weighed on markets Thursday while a debt rating downgrade of Spain hit the euro, a day ahead of a crucial meeting of EU leaders.

It's clear that rising oil prices are having an impact in China, which has been one of the main pillars behind the global economy over the past few years. Many analysts argue that buoyant Chinese economic growth effectively prevented the economic recession from becoming a depression.

The world's second biggest economy, however, reported a surprise trade deficit in February as surging prices for oil and other commodities pushed up its import bill.

"Confidence in equity markets is being shaken once again as China's surprise posting of a trade deficit combined with the ongoing geopolitical uncertainty -- something that's still focused very much on Libya -- is pushing traders very much into a bearish mindset," said Harley Salt, head of sales trading at IG Markets.

The first paragraph here is a mouthful, and would make even the most bullish trader wary.  But it is the news of a Chinese trade deficit that is most likely pressuring the Precious metals and commodities in general.  Others will claim in their headlines that it is "profit taking":

Gold Declines as Stronger Dollar, Advance to Record Prompt Investor Sales
By Nicholas Larkin and Kim Kyoungwha
Gold declined in London as a stronger dollar prompted some investors to sell the metal after violence in Libya pushed prices to a record this week.

The dollar gained against the euro on prospects jobs data will signal a continued recovery in the world’s largest economy and after Moody’s Investors Service downgraded Spain ahead of a European Union leaders meeting tomorrow. Gold, which typically moves inversely to the U.S. currency, reached a record $1,444.95 an ounce on March 7 as violence in Libya increased demand for alternative assets and boosted oil prices.

“The profit-taking is related to a stronger dollar,” said Bernard Sin, the head of currency and metal trading at MKS Finance SA, a bullion refiner in Geneva. Still, “the situation in the Middle East will have a lot of influence” on demand for the metal as a protection of wealth, he said

We were looking for a pop in the Dollar early this week.  The news of a Chinese trade deficit has put a little wind in the Dollar's tattered sails today.  China has merely fallen victim to Bumbling Ben's Inflation Machine.  This sell-off in Silver in Gold would be the expected knee jerk reaction to this news of a Chinese trade deficit.

This news out of China is THE NEWS of the day.  It darkens the "big picture" for the global economy in many ways and should be a story to be followed closely.  It also makes a strong argument in favor of the Chinese regarding revaluing their currency higher as the US has been demanding.  This Chinese trade deficit should make Little Timmy Geithner very happy.

Keep a close eye on Oil prices this morning.  If the price of Oil remains firm it should support the precious Metals and theCommodity Sector.  If Oil tips over as well, Silver will go down with it, along with every other commodity.
The charts below will give you some targets if you are looking to buy the dips may be prudent to let the dust settle on this news, and bear in mind the EU leaders meeting tomorrow and the Fed meeting next Tuesday March 19.  Nothing goes straight up, and as I've been saying all week...I am wary of Silver prices up here. 

Game On! 

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