Daily Market Recap: March 22nd, 2012

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Spot gold traded to a 2 month low of $1628 following a softer Euro which touched 1.3131. Investors shed safer assets to invest in the U.S dollar; the dollar index is trading at a 2 month high of 79.71.

A string of poor data out of China and Europe has taken the shine off the precious metals. Global markets turned negative following the release of HSBC’s manufacturing purchasing managers’ index for March, which showed new orders at Chinese factories hitting a four-month low.  China being a big user of natural resources, any signs of slowing growth will weigh heavily on commodity markets.  The Eurozone meanwhile has no string of luck as the flash PMI dropped to a three-month low of 48.7 in March from 49.3 in February and below expectations of a 49.6 reading. Business activity in the region has contracted six of the past seven months. Eurozone industrial new orders also fell 2.3 percent in January, against an expected drop of two percent and compared to a 1.9 percent rise in the previous month. German March PMI dipped to 48.1, down from 50.2 in February. This was the start of negative news for the yellow metal, declining in European hours and the follow through selling continued into the North American session.

Investors favored U.S dollars as the positive data continues to follow out of the U.S showing signs that the U.S economy could very well be on track for recovery.  U.S. jobless claims dropped to a fresh 4 year low last week, this made the case that the jobs market recovery was gaining traction. Initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 348,000, the lowest level since February 2008 figures showed. The previous week's numbers were revised up to 353,000 from the previously reported 351,000.

Spot silver broke lower touching $31.14 as the dual role metal took its cues from the equities markets. The Dow jones industrial average briefly traded below the big figure of 13,000, bouncing back but remaining lower on the day. The gold silver ratio finally made a definitive move; although not the one we were looking for; breaking out on the top side of 52 to trade to 52.60. Next target for the ratio is 53.87, the January low.

We have seen panic set in once again, but again we caution nothing has changed in the global situation. What propelled the metals higher still remains a threat. Fed Chairman Ben Bernanke said before congress that rising oil prices could lead to “short-term inflation pressures. Higher fuel costs “act as a tax on household purchasing power and reduce consumption spending, and that also is a drag on the economy”, the Fed chief said to the House Committee on Oversight and Government Reform.

“Gold should be bought on this correction especially if we go lower still as we may need a shake-out of less-committed investors. A brief dip below $1,600 is on the cards but the global macro environment still favours investment, notably zero-to-negative real interest rates and I would not rule out further easing by either the ECB or the Fed before year end”  GFMS Global Head of metals analytics, Philip Klapwijk

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