Crude Oil rules the Roost

We are back to trading crude oil once again in today's session with its rise higher derailing equities and "risk trades" and generating safe haven flows.

That can be seen in the gain by the CRB against the CCI, the move higher in the long bond and the resultant rush back into gold and silver particularly when compared to copper.

For the time being, everything is about crude - not even the payrolls number matters right now.

Yesterday gold and silver were both sold off as crude sank amid a easing of concerns over the events in North Africa and the Middle East. That combined with hawkish talk from ECB President Trichet was enough to send gold and silver buyers scurrying for cover. With crude setting a fresh 30 month high today, that was all forgotten.

Expect this very dangerous volatility to continue as long as crude is as volatile as it is. If it were to move lower, gold and silver will follow it down. If it continues moving higher, gold and silver and not going to break down and will keep setting fresh highs. It really is that simple.

The charts are going to reflect this volatility as they generate sell signals which will then promptly reverse into buy signals. Therefore do not put much faith in any predicitions right now. The fact is no one knows what crude oil is going to do on any given day and no one can be sure how events associated with its rise are going to ultimatey play out. That uncertainty is going to keep gold and silver well bid on dips in price but it will also make for quick drops lower if it looks as if crude oil is hitting some sort of temporary top.

I can say one thing with absolute certainty however, if you are a hedger of mortgage risk, you have got to be going nuts attempting to read the bond market in an attempt to implement your risk management program.

Both gold and silver saw open interest drops during yesterday's move lower. Longs were booking profits after crude moved lower but shorts who had been losing money recently also did not hang around long either but decided to cover some as well.  March silver keeps losing interest as per the recent pattern. Also, as was the case the previous day, there were no deliveries against the March contract.