2009-07-22

Gold has run into strong resistance again on approach of USD960

Gold has run into strong resistance again on approach of USD960. There is almost no buying in the physical market at levels above USD955. Gold is losing some momentum, and with a slightly stronger dollar, there could be limited upside today. We see support for gold at USD940 and USD930, with resistance at USD955 and USD960.

There are few data releases which could drive the market today. We await Fed Chair Bernanke’s semi-annual monetary policy report before the US House Financial Services Committee. The market expects Bernanke to signal that policy will remain accommodative, but that interest rates will need to increase. If Bernanke manages inflation expectations well today, longer-dated US Treasuries could benefit. This might see the dollar stronger, and gold lower. But we also expect him to signal no need to drain liquidity from the financial system just yet, and as a result, we believe that gold should find support for at least another few quarters. The interest rate futures and options market is not expecting any rise in US rates until at least January 2010.

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