The gold and silver markets clearly suffered major fundamental and technical damage yesterday and both markets extended that weak action this morning with fresh lower lows for the move. As is usually the case in the gold market, pent-up spec long positioning can be forced out with significant and compacted liquidation waves.

In fact the washout in gold was severe enough to knock the market back below its 50 day moving average which for some suggests the intermediate trend has shifted downward. However investors were not deterred with gold ETF holdings yesterday rising for the 11th straight session with a purchase value of roughly $81 million!

Silver ETF's also increase their holdings for the fourth straight session.

In a story that is more anecdotal than substantial from a demand perspective, the Perth mint reported September's gold sales doubled in September from August, with silver sales reaching the highest levels in 3 1/2 years and that in turn shows another pocket of global demand for precious metals.

However the market continues to be presented with a veritable avalanche of soft economic data from European PMI readings and it would appear as if the fear of slowing/deflation is currently dominating over fears of economic uncertainty.

While gold and silver haven't been overtly pressured as a result of the rising US dollar, another new high in the dollar overnight keeps up currency related pressures.

A slight tempering of trade anxiety following the US denial of any effort to limit investment in China probably added to the safe haven liquidation pressure yesterday but veiled threats against the US in the official Chinese address for National Day would seem to suggest the Chinese are not in a compromise stance.

In the end, noted failures on both gold and silver charts in combination with burdensome spec and fund long positioning, sparked a wave of knock on selling and more such action might be in store ahead.

Surprisingly, gold did not benefit from IMF reports that the US dollar share of total global currency holdings has now declined to the lowest level since the end of 2013, as that have could signaled increased holdings of gold. Unfortunately for the gold bulls, the reallocation of dollar currency holdings was mostly thought to be flowing toward the Japanese Yen.

In looking ahead, evidence of increased investor flows toward gold and silver derivatives could eventually arrest the selling but right now fund and spec futures liquidation overwhelms money flowing into ETF's.

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