We are a little surprised to see the gold market tracking lower this morning given several fresh global political flashpoints. First of all the NATO conference has seemingly started off with significant conflict with the US and French Presidents squaring off face-to-face with differences of opinion on several issues.

Earlier this week the French President indicated his intention to implement a digital services tax and the US President lashed back with the threat of a 100% tariff on French luxury goods imported to the US.

Obviously, the breakdown in US/Chinese trade relations remains in the market just under the surface but that anxiety should have been stoked further by overnight dialogue from China which urged its diplomatic corps to fight back. In fact, it would appear as if the US House of Representatives has begun work on a Bill that would attempt to pressure China on its handling of Muslim minorities and that is sure to create animosity from China. Apparently, the House of Representatives legislation is proposing sanctions on China unless they close Xinjiang camps holding the Muslim minorities.

However, the gold and silver markets are slightly off-balance this morning because of "market/press rumors" that the US and China are still moving closer to a phase I trade deal. In fact, we are a little surprised that the markets have bought into the idea of near term progress toward a phase I deal given negative headline interactions between the two countries over the last week.

While one doesn't get the sense that the gold market is focused on classic jewelry/physical demand, a surprise jump in Indian gold imports last month certainly gives the bull camp fresh resolve especially since that demand news is stoked further by press stories highlighting the expansion of gold holdings by the Polish Central Bank. It is possible that Indian buyers might be stepping up purchases in an attempt to push sales ahead of the January mandatory hallmarking requirement.

Yet another bullish demand development that the market was aware of ahead of the Tuesday US trade came from Australia where the Perth Mint saw gold sales jump to the highest level in 12 months. It should be noted that both Wells Fargo and UBS have floated bullish views/forecasts for gold overnight but that news is partially offset by evidence that gold ETFs reduced their holdings yesterday by 69,773 ounces which is roughly $103 million.

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