Gold prices are again modestly up in early trading Tuesday, on some more short covering and chart consolidation in quieter dealings. August Comex gold was last up $1.60 at $1,255.50 an ounce. Spot gold was last quoted up $3.50 at $1,256.00. July Comex silver last traded up $0.004 at $19.07 an ounce.

The recently rallying U.S. dollar index has been a bearish “outside market” force working against the precious metals markets. However, rising crude oil prices recently have worked to offset the bearish effect of the strengthening greenback. Nymex July crude oil futures prices hit a contract high near $105.00 a barrel Tuesday morning.

In overnight news, China inflation data showed its consumer price index rose 2.5% year-on-year, compared to a 1.8% rise in April. The rise was in line with market expectations and was what China’s central bankers wanted to see. A decline in China’s producer price index in May—down 1.4% year-on-year versus down 2.0% in April, also hints China’s central bank has more room to stimulate economic growth without fanning inflationary fires.

An interesting development has occurred in the market place this week, and may be just a bit scary. Italian 10-year government bond yields have fallen below the yields of U.S. 10-year notes. Just a couple years ago Italian bond yields were pushing toward 8% due to worries about the European Union’s financial health and its sovereign debt crisis. Virtually everyone agrees that U.S. government debt is safer than Italian government debt—so there is no flight-to-safety buying in Italian bonds to drive yields lower than U.S. notes. The main reason Italian bonds are yielding less than U.S. notes is because the European Central Bank has pumped so much money (Euros) into the financial system and is discouraging saving due to a negative deposit rate, that even recently shaky Italian bonds are now being snapped up by European investors and banks which are awash in Euros.

Those who have studied economic history harken back to the extreme inflation that ravaged the German economy and its currency in the 1920s and 1930s. While I am not suggesting the Euro is headed for the same fate as the German reichsmark, it’s hard not to imagine inflation becoming problematic for the European Union at some point down the road. The very easy monetary policies of the European Union and even the U.S. Federal Reserve are and have been a worry to many market watchers—many of whom are holding a “hard” asset, gold, as a hedge against the inflation that is likely to flare up at some point, based upon economic history.

U.S. economic data due for release Tuesday includes the weekly Johnson Redbook and Goldman Sachs retail sales reports, the NFIB small business optimism index, the Manpower quarterly U.S. employment outlook survey, and the World Bank global economic prospects report.

Wyckoff’s Daily Risk Rating: 5.0 (The Russia-Ukraine crisis has died down in the eyes of the market place, while the rest of the world is also quiet on the geopolitics front.)

(Wyckoff’s Daily Risk Rating is your way to quickly gauge investor risk appetite in the world market place each day. Each day I assess the “risk-on” or “risk-off” trader mentality in the market place with a numerical reading of 1 to 10, with 1 being least risk-averse (most risk-on) and 10 being the most risk-averse (risk-off), and 5 being neutral.

The London A.M. gold fix is $1,253.50 versus the previous P.M. fixing of $1,253.50.

Technically, August gold futures bears still have the overall near-term technical advantage. A 10-week-old downtrend line is still in place on the daily bar chart. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,268.50. Bears' next near-term downside breakout price objective is closing prices below solid technical support at last week’s low of $1,240.20. First resistance is seen at last week’s high of $1,258.20 and then at $1,268.50. First support is seen at $1,250.00 and then at $1,240.20.  

July silver futures bears have the firm overall near-term technical advantage. Prices are in a 3.5-month-old downtrend on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $19.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at the contract low of $18.615. First resistance is seen at last week’s high of $19.20 and then at $19.40. Next support is seen at the overnight low of $18.97 and then at $18.75.

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