2011-01-29

With prices particularly low, we might see some physical buying return to the market

After a brief respite, selling pressure resumed on precious metals markets yesterday. With the dollar largely unchanged, the moves were mostly attributable to reduced demand for safe-haven assets on the prospect of a strengthening global economy. The effect of waning investor demand, as evidenced by dwindling holdings by exchange-trade products, was aggravated by the absence of physical buying.

Looking forward, with dollar continuing to track sideways we don’t see much direction for precious metals being taken from the FX market. However, a poor showing on Asian and European stocks as well as US equity futures in the red, points to some relief for precious metals on returning investor demand. Concerns over Japan’s debt downgrade could deepen interest in safehaven assets. Given their stronger fundamentals, we expect attention to be focused on PGMs.

With prices particularly low, we might see some physical buying return to the market, although given the lack of enthusiasm over the past few days, we don’t expect this to lend too much support.

Gold support is at $1,297 and $1,285. Resistance is at $1,336 and $1,361.

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