By Walter de Wet
Equities markets rallied yesterday on increased risk appetite. Platinum and palladium pushed higher, and gold remained flat. However, inconsistent with a bull market, 2y US treasuries pushed higher. Also, 10y US treasuries remain within their support channel formed at the start of April when markets turned bearish because of the global economic outlook.

With risky assets (equities) and less risky assets (bonds) all higher, we believe the market’s behavior is consistent with the expectation of a very accommodative Fed (low interest rates and bond purchases) for some time to come. The futures market seems to share this expectation.

One month ago, the futures market assigned a probability of 24.4% for the Fed funds rate to remain unchanged until at least Aug 2011. One week ago, this probability was 32.8%. Yesterday, the futures market assigned a 56% probability of the Fed keeping rates flat until at least Aug 2011.

From a monetary policy perspective, this development is supportive of commodity prices. We find that precious metals benefit the most from accommodative policy. The view of the futures market is also consistent with our view that gold will continue to move higher towards $1,300 on a 6-month horizon despite its recent price action.

Physical market activity remains supportive of gold as demand from countries such as India and Turkey remains in place and continues to provide support for gold on approach of the $1,170 level. We see support at $1,176 and $1,170. Resistance is at $1,189 and $1,200.

For PGMs, we would view move below $1,550 in platinum now as a good entry point on the back of a much stronger ZAR/ USD exchange rate in recent days. Also, although we favor palladium relative to platinum on a 6-12 month horizon, platinum has lagged palladium’s recent rally. As a result, we believe that platinum support may improve further.

Courtesy: Standard Bank

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook