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Gold is slightly firmer to begin the new week…as of 7:00 am Pacific, the yellow metal is up $3 an ounce at $1,466…Silver is up 14 cents to $24.18…Copper has gained 3 pennies to $3.20…Crude Oil is 29 cents higher at $93.29 while the U.S. Dollar Index is down one-fifth of a point at 82.19…

Strong physical buying out of India, China and elsewhere have helped give Gold a lift since the historic two-day drop of 13% April 12 and 15…May is the peak for Hindu wedding ceremonies in India where Gold is often bought to give to brides, so many Indians have taken advantage of the opportunity to buy the yellow metal at a significant discount…Gold imports in India, the world’s #1 consumer, are forecast to increase by up to 20% year-on-year in the second quarter, due to lower prices in local currency terms, according to the Bombay Bullion Association…at the same time, however, financial investors have been leaving the market…ETF’s held about 73.41 million troy ounces of Gold at the end of trade on Friday, down about 5.2% from April 11, before the slide, and down 13% from the start of the year, according to data from RBC Capital Markets (we’ve seen an unprecedented 11 straight weeks out outflows from precious metals funds)…Ed Lashinski, director of strategy and trading at RBC Capital Markets, told the Wall St. Journal that “it’s not a good sign when retail investors are buying and professionals are selling”…it’s interesting to note, however, that the COT structure for Gold at the moment is very bullish – commercial traders’ short positions have been trimmed to their lowest levels in ages…

Updated Gold Chart

So where does Gold go from here after climbing more than 10% from its intra-day low April 16?…we expected a bounce last week to at least $1,450 (Fibonacci 50% resistance level) and it got as high as $1,485 intra-day Friday (Fib. 61.8% resistance) before closing at $1,463 for a weekly gain of $57…historically, May is typically one of Gold’s best months, so it wouldn’t be surprising to see the yellow take a run at its 50-day moving average (SMA) in the near future which coincides with previous strong support (now resistance) at $1,550…this would also help to ease the still oversold condition of Gold stocks in general…entering today’s trading, the TSX Gold Index is down a whopping 22% for the month of April and 35% for the year…this Index, which closed at 198 Friday, definitely has room to move higher as part of a continued rebound in Gold…a previous support band between 225 and 240 can be expected to provide stiff resistance, however…the bigger picture outlook for Gold turned negative with the collapse (on high volume) below critical support at $1,550 and $1,500, so at the very least we expect to see a re-test of the recent low in the coming months and the possibility of new lows before the Gold price finally bottoms out…

HSBC:  Gold To Average $1,542 In 2013

Gold and Silver are “down but not out”, HSBC said Friday, calling for prices to stabilize as jewelry and coin purchases rise…nevertheless, following the sharp decline in prices earlier this month, the bank has trimmed 10% off its 2013 forecast with HSBC now looking for Gold to average $1,542 an ounce…their average Silver price forecast was trimmed by 20% to $26…the key drivers for Gold, HSBC said, will be investment, retail and central bank demand…investors have been exiting Gold exchange-traded funds, particularly given the strength in U.S. and Japanese equities…“If the economy is moving towards some level of normalization and faith in paper assets continues to improve, then we could see further outflows”, HSBC stated…“That said, we believe the bulk of liquidation has already occurred and that a large component of the market still has a ‘buy and hold’ trading strategy…similarly, a renewed period of risk aversion, uncertainty, or inflation could result in a renewed wave of ETF buying, supporting the Gold price…retail demand for Gold “is the main reason we expect prices to stabilize and move slowly higher”, HSBC said…“Lower prices attract greater buying, especially in India and China”…in fact, the bank said, a 15% rise in physical purchases in India and China would increase Gold consumption by 250 tons this year, a little less than total Gold exchange-traded-fund liquidation so far in 2013…U.S. coin sales have also been robust…HSBC also looks for central banks to remain buyers, forecasting 450 tons of purchases this year…

Deflation Threat:  Could The Fed Actually Ramp Up Its Bond Buying This Year?

In markets, it’s always wise to expect the unexpected…the general view in the investment community is that the Fed will begin to take its pedal off the metal and start to slowly wind down QE beginning either later this year or by early 2014, but what if circumstances actually convinced the Fed to increase its bond buying beyond the current $85 billion per month, putting QE on steroids like the Japanese are doing?…a weakening global economy and the growing threat of deflation could actually bring that about…the Commerce Department reported Friday that its personal consumption expenditure price index – one of the Fed’s favored measures of consumer price inflation – was up 1.2% in the first quarter from a year earlier, well below the central bank’s target…as Wall Street Journal ace reporter Jon Hilsenrath wrote in an excellent piece over the weekend, that was the weakest annual reading since the third quarter of 2008 when the U.S. was consumed by the financial crisis…the Fed’s goal is to try to keep inflation stable near 2%, a level that central bank officials believe supports steady economic growth and hiring…a slip much below that level, as Hilsenrath pointed out, could signal a weakening economy and flat wages…Hilsenrath quoted James Bullard, president of the Federal Reserve Bank of St. Louis, as saying, “I’m a little worried about it…I didn’t really expect inflation to be this low”…a weak global economy is holding down commodity price inflation…Crude Oil prices are down 10% from a year earlier, Gold is down significantly, and the Dow Jones-UBS broad index of commodity prices is off 5%…overall prices of goods imported to the U.S. are down 2.7% from a year earlier, according to the Bureau of Labor Statistics…meanwhile, U.S. wage inflation is modest in the slack job market…average hourly earnings of workers in March were up 1.8% from a year earlier…Hilsenrath pointed out that “several Fed officials have changed the way they are talking about inflation”…in a late March speech, New York Fed President William Dudley described inflation as “below” the Fed target…in mid-April, after new inflation data emerged, he described it as “well below” target…as Hilsenrath mentioned, that’s the kind of subtle change central bank officials often deploy after careful delberation…he quoted Eric Rosengren, president of the Boston Fed, as saying, “If inflation is lower and continues to go lower than our target, that would be another reason potentially for not pulling back on our program”…Bullard said he would consider supporting an increase in bond purchases if inflation fell much further…

Updated Silver Charts

John’s long-term chart (11-year monthly) confirms that while Silver could certainly bounce a little higher to alleviate oversold conditions at the moment – RSI(2) is at an extreme low – the primary trend is negative given several factors including the -DI/+DI crossover and the recent plunge below critical chart support and the Pitchfork tine…expect major resistance at $26…ultimately, there’s a good chance in our view that Silver could fall below the recent $22 low and test major support around $19…

Silver Long-Term Chart

Silver Short-Term Chart

The short-term chart shows that Silver is trying to build a base with support at $22…note the decline in buying pressure near the end of last year which turned into strong selling pressure by February…selling pressure has started to decline but could remain dominant for an extended period…

Central Banks Moving Into Equities

We all know that central banks around the globe (emerging markets in particular) have been loading up on Gold in recent years, but they’re also now starting to pile into equities…below is an excerpt from Frank Holmes’ “Investor Alert” over the weekend (www.usfunds.com):

“Now, central banks, which guard $11 trillion in foreign-exchange reserves, are making adjustments to their strategy and going for the equity play…according to a survey done by Central Banking Publications, among 60 central bankers, almost half see the need to add risk to their portfolio, and “23% said they own shares or plan to buy them” within the next five years, says Bloomberg News…one superstar player of equities is Bank of Japan, which indicated that by 2014 investments in equities will “more than double”…the Bank of Korea started buying Chinese companies in 2012, “increasing its equity investments to about $18.6 billion, or 5.7%  of the total”,  reports Bloomberg…these central bankers are moving to equities in an attempt to increase their potential yield in their portfolios in the face of negative real interest rates…Bloomberg says that while central banks have held government debt in the past, “when bond yields are below inflation in many countries, this (reliance on fixed-income] risks allowing the value of reserves to decline”…in addition, central banks are likely attracted by the dividend payouts, many of which are higher than bond yields…dividends, along with buybacks, have been driving the U.S. market higher…

Chinese Industrial Profits Falling

Growth in Chinese industrial companies’ profits slowed in March, adding to evidence the nation’s economic recovery is losing steam…net income increased 5.3% from a year earlier to 464.9 billion yuan ($75 billion), down from a 17.2% pace in the first two months, the National Bureau of Statistics said on its website Saturday…for the first quarter overall, profits rose 12.1% from a year earlier to 1.17 trillion yuan, it said…

Today’s Equity Markets

Markets in both Japan and China were closed today due to holidays in both countries…trading in Japans resumes tomorrow while the Shanghai Composite is shut down until Thursday…European shares are mixed in late trading overseas…Italy’s new government is preparing to announce its economic plan, after successfully selling 5- and 10-year bonds in the first auction since the country’s new prime minister (Enrico Letta) announced his cabinet…Italy’s new economy minister, Fabrizio Saccomanni, said in an interview yesterday that he plans to cut taxes and public spending and lower borrowing costs…potential market-moving events to watch out for this week include the FMOC meeting (Tuesday/Wednesday), the ECB meeting Thursday (a rate cut is expected), economic data out of China Thursday, and the U.S. jobs number Friday for the month of April…in addition, it’s a very busy week for earnings reports in North America…as of 7:00 am Pacific, the Dow is up 34 points at 14747…the TSX is 63 points higher at 12283 while the Venture has added a point at 966…as we mentioned over the weekend, the potential of a near-term rally in the Venture certainly exists – especially if Gold is able to push its way through resistance in the $1,480’s…

Updated Dow Chart

Technically, the Dow is looking a little tired at the moment and in need of a moderate pullback to unwind overbought conditions…volume, buy pressure and +DI are all declining which lends support to that view…such an event could be an excuse for Gold to temporarily regain some of its lustre and make a run at its 50-day SMA…as you can see below in John’s 2-5-year weekly Dow chart, the top of the wedge is now support at 14200…