Silver tops $45.50, gold $1,500; correction imminent?

The midweek session in the markets was off to anything but a quiet start this morning as a massive display of risk appetite took center stage and pushed the US dollar back to under the 75.00 mark on the trade-weighted index overnight. That drop set the stage for the remainder of the events that followed in other assets and their related markets. More detail on all of that, follows below.

Ironically, the greenback took a speculative-driven beating even as bi-partisan US lawmakers are thought to be entertaining the idea of an “automatic” trigger mechanism that would kick in at some point and force the GOP to agree to tax hikes while forcing the Democrats to live with entitlement program cuts. The dollar’s drubbing also cast aside the remarks by Treasury Secretary Geithner that “the US will never lose its AAA rating” made on the heels of the S&P outlook shift the other day. President Obama has basically embarked on a ‘whistle-stop’ type of tour to sell his deficit reduction proposals to the nation. Dollar sellers appeared to care less about all that and they acted as if quite the opposite had taken place.

Additional catalysts for this morning’s betting were seen in a string of hefty earnings reports by IBM and Intel and they helped bolster such risk-taking while adding more fuel to the “buy everything!” syndrome that has been lifting normally inversely correlated assets in concert of late. Speculators were seen not only willing to take huge risks, but also as still taking advantage of on-going yen (and dollar)-based carry trade conditions. Spiking precious metals values helped the Aussie dollar reach the $1.06 level – one not seen since the currency was first floated nearly three decades ago.

Wednesday’s action in precious metals was off to a robust start across the price boards. Platinum and palladium shone brightest this morning, offering starting gains of 1.5 and 3.2 percent respectively. The former opened up at the $1,793.00 level per ounce with a $26 gain, while the latter rose $23 to start the day off at $754.00 the ounce. Certain year-to-date statistics in the noble metals group show that additions of nearly 127,000 ounces in platinum and 24,000 ounces in palladium have taken place in the ETF space. Those additions do not compare favorably, for example, to the 334,000+ ounces of palladium that were piled into ETF holding during the latter half of last year (figures courtesy of Standard Bank SA).

Strong optimism was on display among global car makers as they flocked to the spectacular Shanghai Auto Show (at the detriment of the New York one). VW said that it may leap ahead of its competitors in Chinese sales by as much as 12 percent this year. GM said that it expects to overtake Toyota’s sales in China and to be able to shrug off the recent government-imposed curbs on car sales in that country. On the other hand, Japan’s exports did fall by 2.2% in March due to the huge quake event and auto production and export was indeed part of that unwelcome statistic.

More gains were in store for silver on the back of intense speculative attention and the white metal broke through yet another price barrier with relative ease: the one at the $45.50 level. There is, at this point, not much that potentially stands between that level and the round figure overhead in terms of resistance. Of course, corrections (if that is what one might end up calling the pullbacks that will eventually occur, given their potential magnitude) were not in the market players’ vocabulary this morning as is typical of 97%-plus levels of bullish consensus, and the 14-day Relative Strength Indicators flashing 85 (!).

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