Gold support is at $1,391 and $1,381


After a strong performance yesterday, precious metals lost momentum in early morning trade. The desire to take profits after the recent highs has proved irresistible for some investors which, coupled with a stronger dollar, has pushed gold and silver below their respective key levels of $1,400 and $33. In the physical market for gold, we have seen selling outpace buying for the first time in four weeks.

Reports that China has asked banks to recalculate capital levels might also have raised concerns over global liquidity, dampening demand for precious metals. The concern is that this may result in some banks falling short or much closer to minimum capital adequacy requirements, and consequently a reduction in lending. Should this materialise, it would be bearish for commodities,
although base metals could be the hardest hit.

Despite the dip in prices, we do not believe that the upward trend has completely run its course. Geopolitical tensions in the MENA region continue to fester, keeping risk aversion elevated (as evident in the poor performance of equities across the globe) and enhancing the appeal of safe-haven assets. In addition, the surge in oil prices is keeping fears of rising global inflation
alive.

Gold support is at $1,391 and $1,381.

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