Buying on dips the preferred strategy

Our view on precious metals is unchanged ahead of the FOMC announcement tomorrow. We believe that gold is pricing in QE of $500bn already. We estimate that no QE action from the Fed may see gold closer to $1,280, while $1trn in QE may see a gold price well above $1,400.

The physical market remains supportive of the gold price, with buying on dips the preferred strategy. We still expect gold physical demand to prevail on dips. However, demand on dips might not be as strong as it has been the past month. While Indian demand may fall away towards mid-November, we still have the festive season in the Western Hemisphere as well as Chinese New Year. In 2011, the Chinese New Year will be on 3 February.

Gold support is at $1,346 and $1,340. Gold resistance is at $1,363 and $1,374.

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