Gold and silver which have benefited the most from inflation-hedge buying

In general, the Fed’s Beige Book was read as favourable to maintaining the current course of monetary accommodation. To this end, the impact on Gold was minimal. The report showed that manufacturing continued to improve modestly, with “slight gains” in consumer spending. While inflation pressures off the back of rising commodity prices was mentioned, the lack of wage pressure implies no significant change to the Fed’s outlook for inflation.

Consequently, this does not warrant any consideration being given to withdrawing monetary stimulus, as yet. The release of Chinese monetary supply and credit extension data this morning, in that it bested market expectations should provide some short-term support for commodities. In addition, the unexpected increase in China’s foreign reserves (currently $3,044.7bn, from $2,991.4bn) should provide support for Gold from a global liquidity perspective. Investor speculation that the Fed will lag the ECB in raising interest rates has led to a weaker dollar (both in relation to the euro and from a trade-weighted perspective), which is broadening the appeal of precious metals as an alternative investment.

In light of tomorrow’s release of Eurozone and China’s price data, the threat of rising inflation is also front of mind for many investors. Again, in particular gold and silver which have benefited the most from inflation-hedge buying.

Gold support is at $1,451 and $1,446. Resistance is at $1,463 and $1,468.

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