Precious metals suffered large liquidation yesterday as equity markets rebounded. The FTSE gained more than
4%, and the S&P put on 6.3%. The Dow posted a 5.8% gain. Base metals and crude oil received strong support
as risk aversion eased dramatically.
The rally in equities comes on the back of comments from Citi’s CEO that the bank was profitable in January and February this year. Citi had reported losses for the past five quarters. The bank has been at the centre of the credit crisis.
While less risk on the back of an improved financial system could see gold lose ground in the short term, we believe the metal will remain well supported throughout 2009. A suddenly profitable Citi can hardly cure the financial system.
Also, the current low interest rate environment and quantitative easing are bullish for gold. For PGM, the real economy remains dire, and we believe it is too early for optimism about a substantial rise in jewellery and autocatalyst demand, especially from Japan.
Gold remains susceptible to a move to $870 in the next few days. In the physical gold market, even as gold falls below $900, we are still seeing scrap flows entering the market.
With risk aversion lower, investment demand for gold should slow. We will keep an eye on volatility and equity returns in the coming days. Yesterday the VIX, which measures implied volatility in US equities, dropped by 11%. A lower gold price could push the other precious metals down too.
But when prices fall, scrap flows will slow, and investment interest should return.
Of the major economies, only Japan will release important data today — its Q4 GDP figure. Consensus is for a 3.5% q/q contraction following the 3.3% q/q decline in Q3:08.
Gold opened at $923 before fund selling saw it slide to $911 ahead of the European session. The metal slipped to $901 at the London PM fix. More selling in New York saw it drop to $892 before it closed at $896. Primary support is at $886, and secondary support at $876 and $851. Resistance is at $911, $926 and $951.
Silver tracked gold, falling from $13.05 in Asia to $12.71 at the London PM fix. It slid to $12.48 in New York before clawing back to $12.54 at the close.
Platinum was erratic in Asia and London, bouncing between $1,059 and $1,040. It settled at $1,041 at the PM fix. With gold under pressure, platinum slipped to $1,037 at the NY close.
Palladium ranged between $198 and $194 in Asia and London. After opening at $197 in New York, the metal slipped to $194 before finally settling at $196 at the close. Rhodium fixed at $1,155.
