2011-03-18

Gold rebounded briefly yesterday off light physical interest and investor bargain-buying


Gold rebounded briefly yesterday off light physical interest and investor bargain-buying. However, with the open of New York markets, investor confidence faded and selling ensued. This liquidation gained momentum overnight ahead of the Asian market open, as investors grew anxious about a repeat of the previous day’s massive sell-off on TOCOM. In addition, sales of gold and silver were mostly likely worsened by the need to cover losses on equities and other commodities.

Asian trade began with initial bout of good buying of gold and silver, and even a light uptake of PGMs, however sentiment once again soured as the Nikkei initially plummeted 4%. Equities subsequently recovered bringing the Nikkei to close down by only 1.4%. Gold mirrored the rebound in equities, and the momentum as continued into this morning’s trading session. Buying interest remains relatively strong, although PGMs remain vulnerable to liquidation.

Developments in the nuclear crisis in Japan will have a significant influence on whether Gold, can sustain the upward momentum. US bond markets reflect speculation that monetary policy tightening could be put off for a while longer than originally expected. Given that break-even inflation remains largely unchanged, we ascribe this more to lower economic growth prospects rather than lowered inflation expectations. While a slowdown in growth might hurt PGMs, a longer period of loose monetary policy would benefit gold and silver from a liquidity perspective.

Gold support is at $1,393 and $1,385. Resistance is at $1,408 and $1,414.

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