2009-12-08

Gold support at $1,142 and $1,136, resistance at $1,160 and $1,176.

Low interest rates remain an important driver of liquidity, and hence the gold price. The Fed funds futures market continues to price no rate hike before June next year, assigning a 70% probability to rates staying between 0 - 0.25% until April 2010. However, beyond April, the probability of rate hikes is growing, with the futures market assigning a 57% probability for rates to rise towards 0.5% and higher by June 2010. There is a growing belief that rates in the US will be higher, sooner. While we do not see this as immediately bearish, we believe higher rates will slow the pace at which gold has been rising.

In the futures market, we have seen a steady rise in gold’s speculative short positions. As of last week Tuesday, the noncommercial shorts stood at 106 tonnes on COMEX — the highest level since May this year. However, the shorts remain only a fraction of the longs. On non-commercial positions was 981 tonnes last week. Because of the rise in short positions, the net speculative long position has remained fairly flat, around 875 tonnes since the start of November.

Gold support at $1,142 and $1,136, resistance at $1,160 and $1,176.

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