The Chinese equity market fell a touch overnight. Hong Kong fell a percent, and Japan fell a touch. JGB yields rose 1 bp to 6 bps above the BOJ’s target of zero.

European equity markets fell a percent this morning. Meanwhile, German government 10yr yields were unch at 0.64%

Over in the US, the equity futures were down a touch ahead of the open. The dollar was firmer vs. other colored paper. Gold was off ten bucks, and bond yields were higher, with the 10yr yield making another new 52-week high of 3.02%.

We opened down a touch in the S&Ps and quickly found our low for the day. The S&Ps spent the remainder of the session slowly grinding higher to go out near the better levels of the session but only up a touch on the day.

Volume backed off (0.8 bln on the NYSE and 2.0 bln on the NASDAQ). Breadth was slightly negative on both exchanges. New lows swamped new highs on both exchanges (166 to 26 on the NYSE and 114 to 43 on the NASDAQ).

Stocks Were Mixed:

Stocks were mixed. Oil and commodity names were firmer, while tech and financials were on the heavy side.

Commodities Were Mixed:

Brent crude rose a touch. Copper rose a touch too. Palladium rose a freckle, while platinum fell 2 percent. Silver fell a percent. The CCI equal-weighted commodity index ETF (GCC) rose a hair.

Gold Slumped:

June gold slumped about $10 overnight as the dollar firmed. After hitting a low of $1320 shortly after the US open (just $2 below the low of the month) that , the yellow metal managed to successfully retest that low and then firm for the rest of the equity session to go out near the best levels of the US session at $1325. Nevertheless, that still left the metal with a loss of over half a percent.

Gold Stocks Slipped But Fared Better Than Gold Once Again:

The GDX gapped down on the open and made a marginal new low for the week before whirling around and recoiling to the upside to fill the opening gap. The GDX eventually peaked near the unchanged mark around mid-session at just shy of its downtrend since last week’s high and then backed off into the close to go out near the mid-levels of the day with a loss of nearly a percent. Volume contracted.

Once again the gold stocks held up fairly well relative to gold and despite gold making a new low for the month, the GDX once again remained well above its low for the month. Many names were even green on the day today despite the metal’s decline and the rally in the dollar index that precipitated the metal’s decline.

Similarly, gold is holding up well relative to the rally in the dollar index, which rallied above its February and March highs today. Gold, however, remained well above its March and February lows. As we’ve noted before, gold typically turns higher before the dollar index tops out during a bounce in a bear market, and I believe we’re seeing the beginning of that turn now given gold’s relative performance to the dollar index and the outperformance of the miners vs. the metal.

The best thing in the world for the gold miners would be a rally in both gold and the dollar given that nearly all the major mines in the world are outside of the US, where costs are in local currency. A rising gold price and falling costs in local currency is the holy grail for gold mining, but I doubt the dollar’s bounce will last.

Tomorrow we’ll hear from GG, NEM, and AEM, and the reaction to those earnings as well as the reaction to the ECB should be the main drivers of the action.

The Dollar Was Firmer:

The dollar was firmer vs. other colored paper. The dollar index rose half a percent to a new 3-month high.

Treasury Bond Yields Rose:

Treasury yields rose 4 bps in the long end, leaving the 10yr at 3.024% and to within a freckle of a new 5-year high above its 12/31/13 high of 3.033%. Yields in the Fed sensitive 2yr were unch at 2.48%. Junk debt was little changed, with the HYG ending unch.

To Sum Things Up:

Earnings reports continue to be sold for the most part (other than gold miners), and rising cost inflation that is crimping margins appears to be a widespread theme. The next question is when does that inflationary theme translate into higher gold prices? Personally, I’m expecting gold to take out its $1360 high sometime in May, but the miners should move up in advance of that breakout in order to set up a breakout of their own above their January highs (also known as “The Never Ending GDX Range Between 21 & 25”).