Gold & Silver Bounce On Average Volume

Dow 12,000 was talked about a lot today even though the Industrials didn’t manage to close above the milestone. It seemed completely premature for editors and analysts to post stories on what this milestone means “now that we’ve crossed it” when in actuality, it failed to close higher. Most also fail to understand how overvalued equities are and are still in full bull mode, though there are some bears who are starting to come around.

I’m not into common equities so the story I was watching today was the bounce in the gold and silver market. Both silver and gold bounced off of their lows which snapped a lengthy losing streak – I suggested on monday that a bounce would be in order and I think that this will be the relative extent of it save tomorrow and friday possibly trading marginally higher. Silver gained 2.54% and had a nice late day push though volume on SLV was merely average. This is a continuation signal and I don’t expect us to hit the bottom until $25. Any large spike in volume will confirm a reversal.

What pleased me today was that gold managed to stay away from the previous lows and close well above $1325. I’m certain that support at $1325 will readjust itself lower, but any dip below that level is an obvious buy signal. Below is an editorial by Jeff Clark on gold demand in China.

http://www.financialsense.com/contributors/jeff-clark/the-red-dragon-golden-breath

There’s some compelling data coming out of China this month about gold and silver. As you’ll see, it paints a very bullish picture.

According to the General Administration of Customs in China, the country’s net imports (imports minus exports) of silver quadrupled in 2010, to 122.6 million ounces. This equals 13.7% of global silver production. This is especially noteworthy when you consider that China was a net exporter of silver for decades, and only became a net importer in 2007.

Several analysts are reporting that demand for physical gold and silver this month has been surging. This is largely due to the start of Chinese New Year, which begins on February 3 and ends on the 18th. Orders have been described as “phenomenal” and shipments as “heavy.”

The operating profits of China National Gold Group Corp, the country’s largest gold producer, hit 3.2 billion yuan (US$483 million) in 2010. This is more than five times the profit of 2006.

China Investment Corp., the country’s sovereign wealth fund, is opening an office in Toronto, only its second outside the mainland. The reason seems clear: they want to diversify their reserves by investing in Canada’s natural resources. The CIC has $300 billion to spend.

According to estimates from the Ministry of Industry and Information Technology, gold production will be 8% higher in 2010 than the year prior. The numbers aren’t final yet, but the agency predicts mainland production will hit 11.9 million ounces. China is already the world’s largest gold producer.

When you add China’s mine production to imports, the final tally on the country’s overall gold consumption in 2010 will likely reach 21 million ounces or more. This is roughly one-quarter of worldwide mine production.

Just prior to his meeting with President Obama, Chinese President Hu Jintao called the U.S. dollar-dominated currency system a “product of the past” and described moves to turn the yuan into a global currency.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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