After a very aggressive liquidation yesterday that was inspired by dollar strength it is not surprising today to see gold recover in the face of what appears to be a reversal back down in the dollar. In fact given the magnitude of the range down ($21) yesterday some measure of classic technical bounce is to be expected.

Clearly the dollar was lifted yesterday by another round of positive US jobs related data but it appears as if economic psychology from China overnight has turned positive, global equity markets are showing positive traction early on and oil prices have recovered which appears to have bolstered optimism toward physical commodities today.

In fact some economists overnight have suggested that the Chinese economy has turned the corner and the trade looks to exit this week with a view that US inflation does have a heartbeat following a 0.6% gain in US producer prices.

It should also be noted that both gold and silver derivative holdings increased overnight in a sign that investors were not "scared off" by the large washout yesterday.

Surprisingly, the markets completely ignored yet another large decline in South African monthly gold production. In the end some of the selling yesterday was justified from a technical perspective, especially with a number of key chart points violated but we see the break as a healthy development that has simply given more credence to March and April consolidation support levels around $1,288.30 in June gold.

While silver ignored positive fundamentals of a jump in 2018 silver demand from the World Silver Institute, that news should help to solidify consolidation low support on the charts around $14.90. In fact, the fresh demand hope for silver was focused on India and the magnitude of the potential increased consumption from there should have been viewed as very material. Silver derivative holdings overnight increase by 737,125 ounces while gold derivative holdings increased by only 8,584 ounces.

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