The gold market faces a bearish environment this morning in the face of the highest dollar trade since June 18th, news of a possible US budget deal, declining US/Chinese trade tensions and from Goldman Sachs suggestions that the Yen currently offers a more attractive hedge than gold.

One might also suggest that news of a clearer path to a new leader in the UK combined with talk that UK forces in the Middle East might be temporarily handcuffed with respect to action against Iran temporarily lowers uncertainty in the marketplace.

However gold should be supported by a 246,378 ounce inflow into gold derivative holdings with the year to date gold inflow into derivative holdings reaching 1.57 million ounces. It should also be noted that silver derivative holdings increased by 9.4 million ounces yesterday bringing their year to date inflow to 47 million ounces.

Gold derivative holdings have now reached the highest level since early February while silver holdings have reached all-time high holdings by our measurements.

Unfortunately for the bull camp, the dollar continues to show signs of extending last week's late recovery bounce with the dollar actually remaining in positive territory yesterday following a contraction in a regional Fed report.

With a four day low on the gold chart this morning and given the magnitude of the net spec and fund long in the latest positioning report, a quick slide back to $1,400 is possible.

The silver market continues to outperform gold and appears to have retained a leadership role with the market managing to waffle around unchanged levels this morning in the face of noted gold weakness. Apparently the silver market is benefiting from ideas of classic fundamental supply tightening and at the same time it is being viewed as cheap relative to gold. The bias is up in silver but prices are vulnerable to gold and Dollar action today.

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