Gold failed to capitalise on the recent rally

Gold failed to capitalise on the recent rally when it could not break above $1,160 yesterday. The euro is trading weaker this morning, providing support to the dollar. Weakness comes from rising concern about a possible Greece default (with the Greece CDS rising more than 20bps towards 290bps). News that China is raising the reserve requirement for banks to drain liquidity from their market is adding downward pressure to gold.

However, uncertainty around the health of major currencies in general should see gold avoid a major sell-off. We also expect physical demand to pick up on price dips in gold. Key support for gold is at $1,142 and then $1,130. The metal will have to break above $1,158—$1,160 where after it may test $1,170.

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