The action in the gold market this morning is impressive as prices have extended a pattern of higher highs and higher lows in the early going despite residual strength in the dollar, higher Shanghai equity market action, and some signs that the infection spread rate in China might be slowing.

On the other hand, the gold market probably drafted some fresh speculative buying following comments from the World Health Organization suggesting there will be more cases beyond China and a possible spread from Singapore. The World Health Organization official also indicated "we may only be seeing the tip of the iceberg" and that certainly sparked some safe-haven buying.

However gold is probably drafting lift from the latest Chinese easing move and from news that Chinese consumer prices for January came in much hotter than expected. Chinese consumer prices climbed by 5.4% (on a year-over-year basis) and that was the largest jump since November 2011. It should be noted that sharply rising food prices were the primary catalyst behind the jump in prices. Pork a major staple necessary to keep citizens happy showed a 116% jump in December and added 2.7% to the overall inflation rate. Therefore gold is apparently cheered by news that deflation is not totally gripping the Chinese market.

It also seems as if news that some workers are being allowed to return to their jobs helps to diffuse concerns that Chinese physical/jewelry demand might not come to a screeching halt. In fact, the government seems to be allowing factories to return as long as they meet criterion including protective gear for all workers, setting procedures for temperature checks, quarantining nonlocal workers and doing periodic disinfection.

ETFs increased their gold holdings on Friday for the 13th straight session which puts the holdings at the highest level since roughly one year ago. Unfortunately for the bull camp the gold market continues to hold a large spec and fund long positioning and with the April gold contract this morning trading $22 an ounce above the level where the COT report was measured.

Therefore we suspect gold spec long positioning is tracking back toward all-time highs! The February 4th Commitments of Traders report showed Gold Managed Money traders are net-long 211,493 contracts after net selling 46,141 contracts. Non-Commercial & Non-Reportable traders net sold 41,311 contracts and are now net long 344,788 contracts.

With silver losing roughly 60 cents from the first headlines on the virus in mid-January any true sign of a slowing of the spread could vault March silver quickly back above $18.10 especially if gold can continue to claw higher in the face of news that some infection spread control might be taking place. The Commitments of Traders report for the week ending February 4th showed Silver Managed Money traders are net-long 56,840 contracts after net buying 7,878 contracts. Non-Commercial & Non-Reportable traders were net long 92,732 contracts after increasing their already long position by 2,867 contracts.

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