Gold continued to enjoy good support yesterday and overnight

Gold continued to enjoy good support yesterday and overnight. Supporting the upward momentum was disappointing US durable goods order data. While the adjustment to March durable goods data was positive, the April data indicates a slowdown in especially new orders and transportation equipment. The slowdown in transportation equipment is expected —
seasonally US car sales decline sharply in April. This component should pick up again in May. However, of more concern to us is an inventory level of manufactured durables and transportation equipment that continues to rise.

Another development that buoyed gold in overnight trade, was
a) the approval of gold’s use as collateral by European authorities and
b) the Shanghai Exchange looking at prospects for a gold lease market off the back of growing demand in China.

This morning however, we have seen someGold come under pressure as early profit-taking emerges in European markets ahead of the weekend and the end of the month. With the dollar still considerably weaker and sentiment still weighed down by Eurozone debt concerns, we don’t expect significant downside for the complex. Adding to gold’s weakness, we have seen selling in the physical market outpace buying for the first time in six weeks.

However, we doubt this will continue, and expect the physical market to return to net buyers again soon. For today, we will look closely at US personal consumption numbers for Q1:11 due for release, as well as personal spending numbers for April due for release tomorrow. Weakness in personal spending, combined with a build in inventory, would be read as a negative for the US economy in general. This could lead to further dollar weakness and a desire for the safety, both
bullish factors for Gold.

Gold support is at $1,518 and $1,514. Resistance is at $1,530 and $1,537.


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