2011-10-03

Gold managed to avoid a sustained slide during US trading hours

Bucking the trend of the past few days, gold managed to avoid a sustained slide during US trading hours. However, there was not much upside to be seen either, with prices moving mostly within the $1,610-20 range. This highlights the point we’ve made over the past few days that confidence in gold is lacking despite the continued uneasiness and uncertainty in markets (which
usually supports safe-haven demand for precious metals). Perhaps participants are still wary after last week’s liquidity concerns due to the threat of Eurozone banking contagion, which we believe was a significant contributing factor to gold’s fall.

Today, it would appear that the continued wariness, together with the holiday-related slowdown in trading volumes (the current Jewish holidays and the pending Chinese Golden Week celebrations starting on 1 October) will make it difficult for gold to sustain any upward momentum. Consequently, we feel that trading will remain relatively range-bound today owing to the relative absence of market participants and a general lack of conviction.

For the most part, the other precious metals are following gold’s lead. The notable exception is palladium which has been pummelled in early morning trade despite a marked improvement in Japanese vehicle production figures (up 1.8% y/y in August, compared to down 8.9% y/y in the July). Perhaps the flat Chinese PMI reading for September (49.9) is weighing on palladium,
given the metal’s exposure to that country’s auto sector. Seasonally, September has always printed better than August, so we interpret this as a sign of future lacklustre Chinese industrial activity.

Gold support is at $1,598 and $1,565. Resistance is $1,651 and $1,669.

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