2010-12-17

Scrap and other selling are outpacing buying interest


10-year UST yields are now close to 3.5%. 10-year breakeven inflation in the US, as implied by the US bond market, jumped to 2.3% this week - its highest level since May. This leaves the 10-year real interest rate still at a very low 1.2%. As long as real interest rates are low gold should find buying support.

In the gold physical market buying remains absent. Scrap and other selling are outpacing buying interest. While the physical market should support gold on dips, it is clear the physical market is unlikely to be the driving factor which pushes gold to a new (sustainable) trading range above $1,420. It appears risk appetite is slowly being toned down as we head towards year-end. The market seems more than willing to take profit on rallies rather than chase the price higher. We’ve seen the VIX index edge back towards the 18% level after falling to 16.8% on Monday which was its lowest level since April this year.

Gold support is at $1,374 and $1,367. Resistance is at $1,392 and $1,404.

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