2011-01-18

Gold plunged on Friday after Chinese authorities announced an increase in reserve requirements

Gold plunged on Friday after Chinese authorities announced an increase in reserve requirements. The central bank raised reserve requirements by 50 bps, to 19% (effective 20 January), in order to curb rising inflation and forestall an imminent property market bubble. Gold and silver suffered the most, with platinum managing to trade in a fairly tight range.

Adding to the fall in prices was a return to risk, initiated by a strong earnings result from JP Morgan ($1.12/share versus an expected 0.99c/ share).
Investors remain preoccupied by the threat of further monetary tightening in China. The release of Chinese property price data, showing the 19th straight month of increases, has further fueled the belief that authorities will have to step in to avoid an asset bubble in the housing market. This is weighing on precious metal prices, encouraged further by a stronger dollar off the back of lingering Eurozone debt concerns as Greece’s credit rating is reduced to junk by Fitch (confirming similar moves by Moody’s and S&P).

Gold support is at $1,353 and $1,342.

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