NEW YORK (Commodity Online): Given that real interest rates are expected to remain negative for longer while concerns over currency debasement and inflationary pressures have resurfaced, the backdrop remains fertile for gold. However, gold still has hurdles to overcome, such as the further strengthening of the dollar, technical resistance levels and profit-taking.
The macro-environment is positive on the back of a stronger than expected US non farm payroll data, lower unemployment and solid growth in factory orders for December. The Eurozone has started 2012 in a good note, with January PMI coming out positive.
Investor flows into the metal is also seeing steady growth. Gold held across the physically backed ETPs rose by 4.3 tonnes last week while non-commercial positions in Comex gold rose by 6.1k lots during the week ended 7 Feb 2012. the reduction in margins by the CME will also influence prices.
On the demand-supply side, data fromHong Kong showed that china imported around 38.84 tonnes of gold in Dec 2011. Meanwhile, Harmony Gold reported a 2% drop in 2011 production. The miner is the eight largest gold producer in the world.
Technically, Near-term price action signals downside risk toward the $1645/$1670 area as momentum studies unwind from bullish extremes. Ultimately, gold is bullish against the backdrop if the weekly uptrend and recent bullish breakout and prefer to buy dips. A break above $1675 would confirm extension toward our greater target near $1800.
Support: $1700/$1670; Resistance: $1763/$1803 Medium term: Neutral
Source: Barclays Capital Commodities Research
