PRECIOUS METALS - European Morning View - Gold finds background support, vulnerable short-term

Investors continued to reduce their risk exposure Friday as EU debt jitters resurfaced and speculation of further monetary tightening by China intensified following much higher than anticipated inflation data earlier in the week. Equities closed broadly lower with the Dow down 0.8 percent and S&P500 1.2 percent, posting their first weekly declines in 5-weeks. Commodities posted even steeper declines with sugar tumbling almost 12 percent; silver 5.4 percent and oil, gold and copper off around 3 percent; the CRB Index saw its largest one-day decline in 19-months, down almost 3.6 percent by the close.

Interestingly the euro closed up 0.5 percent against the dollar and yen while the DXY settled down 0.25 percent despite the fall in risk appetite and renewed debt-default concerns amongst peripheral EU nations, particular after German officials pressured Irish officials to seek aid in order to calm market volatility,

Volatility looks set to remain a feature in the coming sessions with particular focus on this week's meeting of EU finance officials and speeches by ECB President JC-Trichet and Fed Chairman Bernanke Thursday and Friday. In addition, a heavy line-up of economic data will lend direction as traders and investors gauge the effects of the Fed latest QE and broader economic recovery. Data includes; Japanese GDP, Industrial Production and all Industries Activity, Chinese Leading Index, EU CPI, ZEW Economic Sentiment. US data will show Retail Sales; Business Inventories, Empire State & Philly Fed Manufacturing Indexes, Industrial Production, CPI and TICS Long-Term Treasury Purchases.

The precious metals closed lower across the board Friday despite the firmer euro, led by silver and palladium – down 5.4 percent & 4.7 percent respectively – with platinum off 3.75 and gold 2.8 percent. Short-term the complex remains vulnerable to further corrections as the broad risk reduction prompts traders and investors to generate cash; however gold has posted a more modest decline with investment and physical bargain hunting emerging and given the bearish dollar fundamentals we expects corrections will continued to be view as good buying opportunities by investors with longer-term inflation concerns.