Global gold prices correct modestly

Gold corrected in overseas trading on Tuesday, weighed by a modestly firmer dollar and an overbought condition that had developed recently.

However, the increase in the greenback was short-lived and gold has already retraced about half of the pullback.

The dollar index fell back below 80.00 to plumb the eight-week lows after the February Empire State Index and the NAHB home builder sentiment index missed expectations by significant margins.

Additionally, TIC data revealed that foreign investors dumped a whopping $119.6 billion in net US assets in December, including $45.9 billion in long-term assets.

Outflows accelerated in December, versus November, as the Fed commenced tapering. There has been ample evidence that the tepid economic recovery is faltering, yet the Fed is for the time being committed to the taper.

As the Fed reduces asset purchases, foreign appetite for those same assets has dropped simultaneously.

All this threatens to keep upward pressure on yields, which could derail the recovery entirely.

Of course, before that happens Yellen's Fed would likely pause the taper. If growth risks escalate substantially, the Fed could even un-taper, boosting asset purchases once again. The market will be looking to glean any insight into what might elicit a pause or un-taper from the minutes of the January FOMC meeting. Faced with just such mounting growth risks, and a widening trade gap, the BoJ boosted a couple of lending facilities.

"The BOJ doubled a funding tool to seven trillion yen ($68 billion) and individual banks could borrow twice as much low-interest money as previously under a second facility," according to Bloomberg.

The latest data out of Japan is quite a disappointment in the light of the BoJ engaging in the most aggressive monetary experiment ever conceived.

The move by the BoJ was broadly seen as an indication that the Central Bank will keep their foot firmly planted on the monetary gas pedal. Additional outright asset purchases are widely expected in the months ahead as a means to offset the negative implications of a planned sales tax hike.

- USAGOLD