In the physical gold market demand is still lower than a few weeks ago

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 is at $1,222 and $1,215, while resistance is at $1,236 and $1,242.

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