2011-01-14

Yesterday’s successful Portuguese bond issuance has stalled the recent rally in precious metals

Yesterday’s successful Portuguese bond issuance has stalled the recent rally in precious metals, as risk aversion eases and safe-haven demand dissipates. Portugal managed to secure favourable borrowing rates on €1.25bn worth of 10-year bonds.

This news bodes well for the Spanish and Italian bond auctions today, posing further downside risk to precious metals, especially gold and silver. However, eased concerns over Europe’s debt situation have prompted a weakening of the dollar, which as anticipated has limited losses on precious metals. Adding to reduced demand for safety, was the generally positive tone of the Fed’s Beige Book. Six regions reported “modest to moderate” growth, while four noted “improving” conditions. The Fed also restated its commitment to its current quantitative easing program (QE II), although some market participants are speculating that a strengthening US economy might warrant a cutting back of the planned $600bn in bond purchases. From a liquidity perspective this would dent precious metals, most notably gold. However, we feel at present the risks of this happening are minimal.

Gold support is at $1,378 and $1,371. Resistance is at $1,392 and $1,397.

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