2011-03-03

Gold Price risk aversion and fears over global inflation came firmly back into focus yesterday

Risk aversion and fears over global inflation came firmly back into focus yesterday, as the turmoil in Libya intensified and reports of unrest in other oil-producing nations surfaced. US officials have warned of an impending and protracted civil war in Libya as it moves military assets to the region. This has spurred a renewed flight, from higher-yielding assets, into the safety of precious metals. In addition, the associated strength in oil prices is not only fuelling concerns over rising inflation, but investors are also pondering the threat higher energy prices might pose towards the global economic recovery.

Bernanke downplayed inflation concerns in his testimony to the US Senate yesterday. He stated that the recent surge in commodity prices would only result in a “temporary and relatively modest” increase in inflation. He reiterated the Fed’s commitment to the current accommodative monetary stance, and while he did not specifically mention plans post QEII, his view of limited inflation risks hints that the central bank will be in no hurry to tighten. This is especially supportive of gold and silver.

Gold support is at $1,413 and $1,398. Resistance is at $1,440 and $1,451.

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