2011-02-07

Expectations that a positive trend in US data flow may continue are weighing on Gold

Gold jumped to two-week highs on week before CNY, buoyed by political unrest in Egypt and comments by Fed Chairman Bernanke.However, technical trading, which might have triggered some short covering, was most likely responsible for the speed and extent of the move in gold.
Bernanke acknowledged that economic growth was accelerating and stressed that without a faster decline in US unemployment, the Fed remained unsure of the sustainability of the recovery. His comments allayed fears over any early scaling down of the Fed’s planned $600bn in monetary stimulus. This confirms our view that an increase in global liquidity (though at a
slower pace than 2010) leaves room for gold to push higher in 2011. We target $1,500 during Q3:11.

For today, expectations that a positive trend in US data flow may continue (with this afternoon’s non-farm payrolls release) are weighing on Gold. Given our bullish view for the year ahead, we would advocate buying on these dips, but warn that further near-term weakness is still likely because of poor physical market activity.

Gold support is at $1,332 and $1,313. Resistance is at $1,364 and $1,375.

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