Gold holds above $1,800, watching Italy and China

In the Lead: “Welcome to Chitaly?”

Well, it at first appeared that Beijing would “lend” support to the “Bel Paese” by loading up on a sizeable amount of that country’s bonds. The rumor certainly made the news rounds in a flash late yesterday, but, then again, so did the one about the fact that China may not be all that interested in Italy’s debt; perhaps not to the degree that some had envisioned, anyway.

Meanwhile, Germany’s Chancellor let it be known that Greece will not be allowed to descend into an “uncontrolled insolvency” any time soon. Wonder what “controlled” versions of insolvency might look like…? Think some U.S. banks and/or car manufacturers, circa 2008…

That bit of news deflated the euro in a hurry (down to 1.36) early this morning and brought back the issue of what may be up with Greece to the front and center of investors’ preoccupations once again. As well, the on-again/off-again default odds led to a further loss in the CAC over in France; the index has now suffered its largest three-session loss in three years.

The weakness in the euro and in the equity markets translated into same in gold, as sellers were once again seen trying to plug their newly incurred portfolio gaps with proceeds from the liquidation of the most…liquid of assets. Risk is off the table, at least for this week. However, the significance of the EU and its common currency is far from being shoved to a side-table anytime soon.

China is fully aware of and quite interested in the outcome in the Old World, as it has untold sums invested in the region and as it hopes to continue to be able to sell its gazillions of products to European consumers going forward, as well. Thus, perceptions that China might open up its checkbook to the tune of a trillion (or more) and match the size of the regional stabilization fund currently in place (a fund which has done anything but “stabilize” conditions) are not that far-fetched. Who else, these days, has such “buying power” to flex, after all? For the moment (as in today at least) however, it is too early to declare that “China will bail out Italy.”

Similar to the aforementioned ups and downs in European spirits, the overnight period also saw gold undergoing its own (by now routine) roller-coaster ride of value and emotions. The yellow metal fell as low as the $1,794.00 level and it remained in a close overnight orbit around the psychological round figure as the markets prepared for the opening of New York action. Some still fear that there is something developing in the market at a time when 75% of money managers have been seen recommending gold to their clients; something they would not have been caught dead doing, circa 2006 or even later.

Silver moved in a similar fashion, pivoting around the $40 mark but not showing a lot of conviction to move into a particular direction just yet. The opening bell in New York had gold trading $9 higher at the $1,823 bid level and silver ahead by 24 cents at the $40.53 mark.

Monday evening’s Elliott Wave short-term updates offered up the possibility that, with the double-failure to break decisively above the $1,900 mark, gold might be poised to yet see significant downside potential. A possible “substantial rally phase” in the US dollar (perhaps already underway) and a breach of the 1,666 level could usher in such a declining period for the yellow metal.

On the other hand, a break-out to higher ground might bring along one “final upward push” that could mark the end of a fifth wave. Silver’s prospects of breaking higher would be all but eliminated if the white metal falls beneath the $38.70 mark and such a breach would open the door to an initial slide towards the $32.00 price zone.

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