Despite a report that gold holdings of exchange-traded products had fallen precipitously

Despite a report that gold holdings of exchange-traded products had fallen precipitously, the gold price has have managed to gain some ground. Gold holdings fell by 31mt, the largest fall in two years, to a level last seen in August. More confidence in the global economic recovery is being cited as a factor in this sell-off. Nevertheless, over the long term, we maintain that accommodative monetary conditions will continue to favour gold. We forecast an average price of $1,430 for 2011.

Already we are seeing a rebound in precious metals as investors expect the Fed to reiterate its commitment to quantitative easing (in FOMC comments out later today). A slightly weaker dollar is helping this recovery in prices. We expect a more positive tone from the Fed concerning the health of the US economy.

However, because of persistent unemployment, we expect no changes to policy. Such reassurance should push gold and silver higher. Gold support is at $1,328 and $1,323. Resistance is at $1,338 and $1,342.