Gold succumbed to profit-taking yesterday

After reaching a six-week high, gold succumbed to profit-taking yesterday. The trend has continued into this morning, with the absence of Far East physical demand (due to Lunar New Year holidays) opening up the metal to further downside. The rest of the Gold complex has followed gold lower, although platinum came under particular pressure from liquidation overnight on TOCOM. It did however rebound quickly, thereafter resuming a more sedate downward trend.

Better-than-expected PMI readings out of the Eurozone have also dampened investors enthusiasm for safe-haven assets. The figures showed that the services sectors in both Germany and the Eurozone expanded. German manufacturing grew (analysts expected a contraction), while Eurozone manufacturing did contract, although at a slower pace than expected.

Today is the start of the FOMC’s two-day meeting. This will be the first meeting where the Fed will release its projections on the Fed funds rate. Given the strong positive relationship between gold and low real interest rates, the release of the Fed’s view on its key lending rate tomorrow will be of interest. Currently, the Fed has assured markets that rates will remain low through to mid-2013, at least. If the view appears more hawkish, we could see gold, as well as the other precious metals, lose some ground.

Gold support is at $1,661 and $1,652. Resistance is $1,681 and $1,691.

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