Malaysia Gold Investment

Gold continue to push higher, adding weight to our assertion that equity markets and base metals are largely being driven by bargain-hunting rather than resurgent risk appetite. Disappointing US jobless claims data further fuel precious metals.

Gold is showing as a strong up day at current 1230. Gold earlier took a look toward 1211 but this key pivot held. The bounce sets up another leg higher on a break of last weeks high of 1237. We see 1253 as the initial resistance from our channel top and 1265 the June high. We remain bullish while 1211 support holds.

We've long held the view that liquidity (not necessarily inflation) drives commodity prices higher. We find the influence of liquidity on commodity prices differs hugely depending on the underlying commodity. But we do find that gold benefits the most from this effect, followed by oil, then PGM and then base metals. The St Louis Fed’s weekly zero maturity money supply has been rising marginally. After a rapid rise in money supply in 2008, and topping out in July 2009, the St Louis Fed’s zero maturity money supply has steadily decreased. However, since May this year the money supply is again trending higher. It is still too early to tell whether the upward trend will continue and reach new highs in coming months but we do view this as a positive sign, especially for gold, as we head towards Q4:10. In the physical gold market demand is still lower than a few weeks ago on the back of the higher gold price. We expect demand to pick up should gold drop towards $1,200 again. Gold support...

Gold continues to find good support, driven by the steady rise in investment demand. However, note that although physical demand out of India and Asia remains positive, interest in gold has slowed from the very high levels observed when gold was below $1,200. Data releases are light this week. We therefore turn to financial markets. Specifically, developments in the inflation-linked bond market. The 10-y US TIPS (inflation-linked bond) yield is just below 1%. This shows that the market currently expects real long-term interest rates to average around 1% over the next 10 years. While TIPS yields may be slightly distorted by liquidity, the current yield is at levels last seen in early 2008 (just before the Lehman collapse). The low TIPS yield is also consistent with the Taylor rule (the Taylor rule indicates where the Fed may set US interest rates by balancing the Fed's two major targets: inflation and unemployment). According to forward-looking estimates of the Taylor rule, rates se...

Gold rallied overnight off the back of the Fed’s commitment to extend its quantitative easing measures. Citing a “more modest” pace of economic recovery than originally anticipated, the FOMC said it would be reinvesting redemptions on its mortgage backed securities into long-term Treasuries, effectively maintaining its US$2tr balance sheet. Both the Fed’s commitment to maintaining liquidity and its deteriorating growth outlook are broadly speaking bullish for gold, however, a resurgence in dollar strength has once again stymied gold’s advance this morning with spot gold falling below $1,200/oz. Once the dollar stabilizes or weakens again, we expect to see decent buying interest for gold re-emerge Gold support is at $1,194 and $1,184, while resistance is at $1,210 and $1,217.

Focus: Gold physical demand still strong At the start of last week, we reported on the very strong demand response from the physical market due to the drop in the gold price below $1,180. This demand has continued unabated. The gold price decline comes at a good time, especially for the Indian market but also other markets such as Turkey where price elasticity is being assisted by a very strong seasonal demand reaction. Physical market demand is evident from our Standard Bank Gold Physical Flow Index (an index value greater than zero confirms buying activity in the physical market; the higher the value, the greater the buying momentum. An index value less than zero confirms selling in the physical market). The demand response in the physical market has been confirmed by the pick-up in premia in Asia over the past few days. The seasonal demand response of Q4 is due to rising jewellery demand during this period. While gold jewellery demand (in absolute levels and as a share of total dema...