Gold finally saw some moderate profit taking in Asia and Europe overnight, as the U.S. dollar stabilized, and risk-off sentiment waned.
That quickly reversed on the COMEX open, as manufacturing data for the Northeast U.S. plunged, after hitting 20-month highs in January.
The dollar, which had stabilized after sustained weakness, promptly headed south, which help gold rally to start New York trading. Silver followed the same trajectory as gold, and had already made up most of its overnight losses by 9:30 am. The PGMs were pulled along, both up and down, by gold's actions.
The dollar's weakness is despite a falling yen, which was hit by yet another round of monetary stimulus from the Bank of Japan. The central bank announced expanded loan programs to commercial banks, in an effort to boost the economy. This cranked the Nikkei up, with the index closing with an over 3% gain.
The Chinese central bank continues to draw down market liquidity in the Middle Kingdom, after a record infusion of cash in January to stem a crisis caused by the massive off-the-books lending in the nation's "shadow banking" sector. The Shanghai index was down .77%, while the Hang Seng was up slightly, by .23%.
European stocks saw a bit of consolidation, after gaining in eight of the last nine sessions, worried about a slowdown in the U.S. economy. The mood wasn't helped when the ZEW investor sentiment index for Germany fell to 55.7 from 61.7 in January.
Some of gold's pullback overnight could be in preparation for tomorrow's release of the FOMC minutes of their January meeting. This will be the last big info from the Fed until their next meeting March 18-19, which will also feature Janet Yellen's first FOMC press conference as Fed Chairman. The next big report out of the U.S. this week will be Thursday's CPI data.
The only surprise over last night's correction in precious metals is why it took so long. Gold has been exhibiting very strong behavior by systematically grinding through resistance levels without consolidating afterwards. Looking forward, the Fed's tapering of its bond-buying program is miniscule, compared to the easing actions of Japan and China. Keep in mind that the Fed's balance sheet is still growing at $65 billion a month.
Bloodshed in Thailand, Egypt, Iraq, and Ukraine will keep all the emerging market crises in the news, as Kazakhstan has opened a new battlefield in the currency wars by its surprise 19% devaluation of their currency, the tenge. Most other emerging markets have been burning through their dollar reserves trying to pull their own currencies out of a dive, and are rapidly losing the ability to do so. The question will be, whether they allow the market to beat their currencies down, or they go ahead and devalue in an orderly manner.
Is it any wonder that people from Argentina to Indonesia, and South Africa to Russia are in love with gold?