Bullion: Silver rallies on the back of gold

Risk appetite is back this morning which is benefiting gold. The increased risk appetite comes as G20 leaders signal continued stimulus for the global economy. As a result the dollar is weaker this morning. Gold is trading at new highs—and we expect more upside. Underlying support remains in place and this should be the case for the rest of the quarter.

Our target for the US dollar against the euro remains $1.60 towards the end of Q1:10. We believe $1,150 for the gold price is a real possibility. However, at this stage we are slightly less bullish on gold next quarter. As we head into Q1:10, we also expect some the dollar weakness to be offset by seasonal weakness in the jewellery market.

With gold edging above $1,100 this morning in Asia, there has been some short covering pushing the price quickly towards $1,105. The fact that the dollar is trading around the $1,50 level against the euro is adding to the gold buying. Although there was some consolidation this morning in the price around $1,105, the US market might come in and buy more gold.

However, we expect resistance from the physical market as more scrap may come to the market. Gold support is at $1,090 and resistance is at $1,110. Silver has rallied on the back of gold. Further support comes from the base metals which have also pushed higher this morning. Overall however, the $18.00 level remains a strong resistance level for the metal which should remain in place.

Both platinum and palladium are following the dollar, having recovered their losses on Friday. For platinum the $1,370 resistance level remains in place and although we see upside for the metal during the next 6 months, there is likely to be selling ahead of $1,370. Palladium is range-trading between $325 and $335.

Courtesy: Commodities Research, Standard Bank