Slight corrective track as calm prompts long profit-taking

GOLD -12.70, SILVER -0.01, PLATINUM -0.84

OUTSIDE MARKET DEVELOPMENTS: Global equity markets overnight were higher with some gains nearing 1.5%. Critical economic news released overnight included lower New Zealand exports and imports, a double-digit increase in New Zealand credit card spending in February over year-ago levels, a significant jump in GBP public sector net borrowing for the month of February, slightly softer Swiss imports, and significantly softer Swiss exports. The North American session will start with a weekly private survey of same-store sales followed by February Canadian CPI which is forecast to have a moderate downtick from January's 5.9% year-over-year rate. February US existing home sales are expected to have a mild uptick from January's 4.0 million annualized rate. Earnings announcements will include Nike after the Wall Street close.

Without a fresh bank problem added to the recent list a measure of relief in the markets should prompt long profit-taking in gold and silver. Unfortunately for the bull camp, the focus of the trade and the source of triple-digit gains off the early March low in gold was primarily flight to quality and this morning the markets are "somewhat relieved" that time is passing without fresh Bank issues. However, even a very minor headline pointing suspicion at another bank would suddenly throw gold and silver prices back toward new highs for the move. On the other hand, even with the dollar showing signs of extending the March slide with a dip below psychological 103.00, gold and silver seemed to have taken little notice. Sentiment in the financial markets has shifted definitively in favor of a "pause" from the Fed tomorrow, but we are not sure gold will see a large rally if the Fed takes a pass on hiking rates. We do believe gold and silver will find some minor speculative buying ahead of the Fed meeting but the reaction in gold prices to the Fed outcome is extremely difficult to predict. In fact, a "pause" could prompt aggressive flight to quality buying off the idea that the banking situation is more threatening than the markets realize, or because inflation might be able to regain momentum because of a pause in the inflation fight. However, a more likely scenario is a pause by the Fed will at least temporarily prompt market confidence which should result in gold and silver falling back toward the recent lows. In a very disappointing development for the bull camp, both gold and silver have seen consecutive days of large ETF outflows with year-to-date gold and silver holdings both down by 1.3% year-to-date. However, a positive development for the bull camp today came from a 32% increase in Swiss gold exports last month with a large amount of those export going to China. In fact, Swiss exports to China increased by 122% to 58 tons while Swiss gold exports to India increased by 22.4 tons. Furthermore, Turkey continues to be a significant gold importer with the purchase of 43.9 tons of Swiss gold last month. In conclusion, traders should not underestimate the size of potential swings in gold and silver prices ahead and we suggest risk-averse traders seek put protection against long gold and silver futures positions.

While the initial range in platinum today is narrow, the trade is likely to see flares of volatility over the coming 36 hours with the banking crisis, Fed decision and a series of global inflation measures likely to ripple through precious metal markets. Fortunately for the bull camp platinum ETF holdings, yesterday saw an inflow of 5,390 ounces putting the year-to-date gain at 2.3%. In another positive fundamental demand-side development overnight, Swiss platinum exports jumped by an astounding 357% on a month-over-month basis last month. January Swiss exports were 847 kg and jumped to 3868 kg last month. While the Swiss customs report did not provide a breakdown of where the jump in platinum exports occurred, given the massive Swiss gold export increase to China last month, we suspect China contributed significantly to the February platinum outflows from the key refining hub of Switzerland. Unfortunately for the bull camp, the charts are bearish this morning with uptrend channel support relatively far below the market at $955.65 and without a broad rise in physical commodity prices today we favor the downward track. Obviously, we are not as bearish toward platinum as we are toward palladium as the palladium market has clearly lost bullish sensitivity and is embracing the downward track on the charts. Furthermore, palladium ETF holdings yesterday declined by 1,390 ounces leaving the year-to-date gain at only 7.5%. Furthermore, February Swiss palladium exports fell slightly from 694 kg to 529 kg last month. Therefore, the palladium market looks to remain a classic physical commodity facing periodic demand fears from industrial substitution and from renewed recession fears. With another lower high and lower low yesterday the palladium charts point down with near-term support and targeting $1,363 and then again down at $1,333.

TODAY'S MARKET IDEAS: While we do not know if there is another cockroach set to surface from the banking industry, fear and anxiety in the marketplace have already lifted gold prices by $160 leaving the market heavily vested in a straightaway continuation of the financial crisis. As indicated already, we suggest those with long gold and silver futures positions to consider the purchase of put protection into the Wednesday US Federal Reserve rate decision. In fact, traders might also consider selling calls above long futures positions as a temporary defense against further deflating of anxiety.