2011-03-30

Gold once again came under pressure off the back of encouraging US data flow


Gold once again came under pressure off the back of encouraging US data flow. Personal spending figures for February increased by 0.7% m/m, a better-than-expected result (consensus: 0.5% m/m) and a marked improvement on January’s increase of 0.3% m/m (revised). Pending home sales data also showed an unexpected increase, showing a 2.1% m/m in
February. This was particularly encouraging after the 2.8% m/m and 3.2% m/m declines seen in January and December, respectively.

The uptick in consumer spending and signs of a strengthening housing market have boosted investor optimism that the US economy is entering a more solid phase of growth. Consequently, the appeal of precious metals as a safe-haven has been diminished. However, over the medium term, global uncertainty (unrest in the MENA region, the Eurozone debt crisis and the prospects for the Japanese economy) remains high and we could see renewed interest in the complex, especially if there are any developments perceived as negative on these issues.

For today, given the focus on US data flow, we would watch this afternoon’s consumer confidence release closely. A disappointing number could dent the current optimism surrounding the US recovery and see safe-haven demand come back into vogue. However, given that expectations are already quite low (the measure is expected to fall to 65.0 in March, from 70.4) we believe that the risk of a disappointing figure is relatively low. Consequently, interest in precious metals could remain lacklustre for today.

Gold support is at $1,406 and $1,398. Resistance is at $1,426 and $1,438.

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