2011-04-14

Gold support is at $1,447 and $1,435.


As oil prices dropped dramatically yesterday (fuelled by concerns that higher oil prices would result in demand destruction, implying a deterioration in the global growth outlook), Gold tracked the rest of the commodities complex lower.

However, as the Asian markets opened this morning, some resilience was evident among the Gold, in particular gold and silver. This recovery from yesterday’s fall has been steady, although the complex is far from yesterday’s highs. A weaker dollar and a recovery in oil prices are providing support for gold and silver. As usual, it is silver which is benefiting the most, with large volumes indicating that technical buying is largely responsible for the gains. For PGM, sporadic demand has managed to lift prices, although this group still looks vulnerable. Eurozone industrial production for February, although disappointing expectations, has shown an improvement on January (7.3% y/y, compared to 6.3% y/y respectively).

The release of the Fed’s Beige book later today will most likely be closely watched. As highlighted before, markets will most likely focus on any signals that the Fed might be contemplating an early exit to its planned $600bn in monetary accommodation. To this end, signs of a strengthening US economy or rising inflation might darken the outlook for continued monetary accommodation and abundant global liquidity. Given the strong positive relationship between Gold and global liquidity, this could shake confidence in the complex, prompting some downside for prices.

Chinese money supply figures (including new yuan loans) are also scheduled for release this week. These might spark a knee-jerk sell-off in Gold should they reveal a slowdown in monetary expansion.

Gold support is at $1,447 and $1,435. Resistance is at $1,470 and $1,480.

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