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A slight upward bias facilitated by more Dollar declines

Commentaries & Views

While the dollar has continued sharply lower overnight, gold and silver prices have managed only moderate rallies. Gold and silver managed to extend the recovery off last week's lows in Tuesday's trade, but the rallies were carved out on declining open interest and low volume, which suggests the rally is built on anemic sentiment. On the other hand, with the dollar falling precipitously this week, sellers of gold and silver are likely buying back those positions, which in turn lowers open interest. Fortunately for the bull camp, the bounce off last week's lows is not caused by a single impact, with the Ukrainian tensions adding into the recent gains. While the latest iteration in the Russian versus the rest of the world saga is not as incendiary as troop movements and the movement of blood supplies to the border, seeing President Putin discussing why Hungary is purchasing gas at substantially lower prices and indicating that it will not have price and supply problems next year illustrates how Russia is using natural gas as a political weapon. Some are suggesting the Russian President is attempting to block the eastern movement of NATO, while others are suggesting Russia is looking for higher-priced, long-term commitments for various commodities. In another potential sign of economic aggression, Belarus reportedly rerouted a ship carrying potash from Lithuania to Russia. Perhaps Russia is turning up economic pressure in several commodity markets.

MARKET IDEAS: With the dollar continuing to fall, we expect gold and silver to grind higher, but if the dollar recovers, we expect gold and silver to fall quickly back to last week's low. In other words, the bull case is thin at present, and the best argument of the bull camp is the proximity to consolidation low support on the charts. We see value at $1,783.80 in April gold and resistance at the 50-day moving average (which coincides with the middle of the last six months’ trading range) at $1,817.80. We see similar value in March silver at $22,00 and project a rally to the middle of the consolidation up at $23.40.

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