The gold market has initially recoiled from yesterday's impressive extension of the early April rally as if buyers have suddenly turned cool toward the metal. Apparently the dollar index has failed to give off the impression of straightaway downside action ahead thereby giving pause to buyers.

The gold market might be off balance because of a contraction in Chinese consumer prices for March, as that can sometimes be an indicator of poor economic health. Perhaps the gold is undermined as a result of Chinese government promises to increase regulation and clamp down on illegal gold trading, as that could blunt some demand.

Not surprisingly the gold market this morning has also discounted/ignored news that South African gold output in January declined again this time by 22.8% relative to year ago levels. Over the last several years the gold market has not embraced a long-held pattern of declining gold production.

Offsetting the decrease in South African gold output is news that Zimbabwe managed to post record high gold output last year but the net annual gain of two tons is relatively immaterial to the world Gold market.

In the end we think the dovish central bank takeaways this week should underpin the gold market despite this morning's early weakness but it could take a June dollar index trade back below 96.40 to reverse the corrective early track. Both gold and silver derivative holdings declined again overnight which extends a pattern of investor disinterest.

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