Inflation concerns are once again returning to view

Although trading down for most of yesterday, precious metals made a strong rebound in the afternoon session. The betterthan- expected jobless claims numbers were largely ignored, as risk appetite waned and safe-haven buying resumed. Although activity in China remains muted, there was evidence of strong interest for silver. This contributed to silver’s push above the
psychological $30 mark. At these prices though, not much physical demand is forthcoming.

Inflation concerns are once again returning to view, as investors anticipate next week’s release of Chinese price data. Expectations are for the upward trend in both consumer and producer inflation to continue (consensus estimates are 6.2% y/y and 5.4% y/y, respectively). China’s recent rate hike is also fuelling these inflation worries. This is providing support for precious
metals, especially gold, as investors seek to hedge against rising global prices. The ongoing political instability in Egypt is also contributing to increased interest in precious metals, as investor uncertainty leads to greater risk aversion. With more protest planned, this should continue to provide some lift.

Gold support is at $1,353 and $1,345. Resistance is at $1,369 and $1,375.

Trade in Gold was rather uninteresting yesterday

Trade in Gold was rather uninteresting yesterday. Bernanke’s testimony to the House Budget Committee did spark some volatility, although ultimately prices ended the day mostly flat. As expected, Bernanke’s statement revealed nothing new about the Fed’s stance on the US economic recovery and its commitment to monetary accommodation.

Although risk appetite appears to waning, investment demand for precious metals is not forthcoming. Physical demand too, especially in Asia, remains on the sidelines. With little buying to counter it, a resurgence in the dollar is pulling the complex down, exacerbated by some light profit-taking. Perhaps the lack of interest in China, after the return from holidays, is also contributing to investor unease. While we only expect a pick-up in Chinese trading from Monday, we would caution that there is a risk that this will disappoint.

As always US jobless claims data might prompt some price action, with disappointing numbers providing limited lift. Gold support is at $1,357 and $1,352. Resistance is at $1,367 and $1,372.

Extremely strong demand in China and India particularly helped to cushion this fall

Gold sustained a fall of $78 (on a fi xing basis) or just over 5% during January under investor liquidation and a build-up of short positions as a result of improving economic confi dence. Extremely strong demand in China and India particularly helped to cushion this fall. This demand is now on the retreat, pointing to the likelihood of further price falls in February.

Conditions are likely to be volatile given the frequent shifts in the economic and political environment, with tests of $1,300 a possibility, although we adhere to our medium-term bullish stance.

Trading in gold remains lacklustre

Trading in gold remains lacklustre, with investors hesitant to commit. While appetite for risk seems to be growing, gains in equities remain modest, indicating that markets remain apprehensive. For now, this uncertainty is preventing a strong sell-off of gold. Some dollar weakness is providing some support, although, given the lack of both investor and physical interest, we don’t expect this to push prices significantly higher.

As copper shows signs of weakness, silver has begun to lose momentum. Currently, silver seems to be trading more in line with the rest of the precious metals complex.

Gold support is at $1,345 and $1,339. Resistance is at $1,355 and $1,359.

Gold prices fall back - US economic data still pointing towards a general recovery

Amid a knee-jerk reaction to the very poor headline non-farm payroll numbers. However, a closer look revealed that bad weather during the survey week had depressed the payroll statistics. In addition, the drop in the unemployment rate to 9%, from 9.4% previously, once again fuelled hopes of a strengthening economy and saw gold prices fall back towards their early-afternoon levels.

With the US economic data still pointing towards a general recovery, the easing of tensions in Egypt has contributed to an increase in risk appetite. This has helped support the equity markets, but is also keeping precious metals on the back foot. The notable exception however is silver, which is benefiting from its semi-industrial nature and is looking more towards copper for direction. Copper is trading comfortably above the $10,000 (after touching new highs), on the back of global recovery hopes.

Gold support is at $1,343 and $1,337. Resistance is at $1,357 and $1,364.

Expectations that a positive trend in US data flow may continue are weighing on Gold

Gold jumped to two-week highs on week before CNY, buoyed by political unrest in Egypt and comments by Fed Chairman Bernanke.However, technical trading, which might have triggered some short covering, was most likely responsible for the speed and extent of the move in gold.
Bernanke acknowledged that economic growth was accelerating and stressed that without a faster decline in US unemployment, the Fed remained unsure of the sustainability of the recovery. His comments allayed fears over any early scaling down of the Fed’s planned $600bn in monetary stimulus. This confirms our view that an increase in global liquidity (though at a
slower pace than 2010) leaves room for gold to push higher in 2011. We target $1,500 during Q3:11.

For today, expectations that a positive trend in US data flow may continue (with this afternoon’s non-farm payrolls release) are weighing on Gold. Given our bullish view for the year ahead, we would advocate buying on these dips, but warn that further near-term weakness is still likely because of poor physical market activity.

Gold support is at $1,332 and $1,313. Resistance is at $1,364 and $1,375.

Weaker dollar and continuing turmoil in the Middle East should provide some lift to Gold

Gold and silver managed to shrug off better-than-expected US personal spending data, and regained some ground in Asian trade. Rising tensions in Egypt have fuelled uncertainty and pushed oil prices higher, threatening the global economic recovery.

This has seen investors return to the relative safety of precious metals, with some exchange-trade funds seeing a rise in gold holdings after last week’s consistent outflows. With fairly thin trading in Asia though, ahead of Chinese New Year celebrations, gold has not managed to push beyond the $1,350 level, while silver is meeting similar resistance at $28.50. For today, a weaker dollar and continuing turmoil in the Middle East should provide some lift to Gold. However, a strong US ISM manufacturing reading might discourage interest, especially in gold. Analysts are expecting an increase to 58.0 in January. ISM data on prices might be of secondary significance as markets look for signs of inflationary pressures.

Gold support is at $1,325 and $1,312. Resistance is at $1,350 and $1,359.