2011-06-15

Yesterday’s downward pressure on Gold has eased off as concerns over the Eurozone debt

Yesterday’s downward pressure on Gold has eased off as concerns over the Eurozone debt situation and global inflation have re-emerged. The recent downgrade by S&P has put Greece’s sovereign debt rating at the lowest level of any country, as the agency has cited an increased likelihood of default. This has raised anxiety in markets, enhancing the safe haven
appeal of gold and silver.

Chinese price data has also prompted a renewed fear that inflation could erode the value of investments, pushing investors into precious metals as a more reliable store of value. Consumer inflation in China rose to 5.5% y/y, the highest level since July 2008. Producer inflation which remained steady at 6.8% y/y is still considered high. In response to stubborn inflationary pressures the Chinese central bank raised reserve requirements by 50 bps this morning.

According to our analysis, changes in Chinese monetary policy (especially reserve requirements) have limited impact on Gold prices, with base metals more harshly affected.

Gold support is at $1,509 and $1,499. Resistance is at $1,531 and $1,543.

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