Gold remains well supported

Gold remains well supported. Risk aversion remains high. This is clear from the jump in US and European equity market volatility on Friday. Apart from the rise in sovereign credit risk in especially Europe over the past few weeks, US Libor is also rising, indicating increased pressure on money markets. The rise in US Libor is not substantial yet, but worth keeping an eye on (US 1month Libor ticked up from 0.26% at the end of April to 0.34% last week).

Should the spread between Libor and the Fed funds rate increase substantially, the dollar is likely to be the main beneficiary. As long as money markets don’t seize up in the same way as in late 2008, gold should remain very well supported.

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