Gold has by far the greatest causality with liquidity

Gold have made steady gains overnight, largely supported by a weaker dollar and resurfacing concerns over the Eurozone debt situation. Physical buying remains supportive of gold below $1,500. Today’s release of the FOMC minutes will be important as a signal of the Fed’s plans for liquidity. In anticipation of the release talk/suggestions that the Fed may start to reduce the size of its balance sheet and drain liquidity from the economy are likely to surface. When the Fed drains liquidity, it will be bearish commodities in general, but gold specifically. We find gold has by far the greatest causality with liquidity, followed by crude, and then base metals in general.
However, we feel there is no reason to think that the Fed would begin tightening monetary policy (raising rates or draining liquidity) any time soon.

Inflation pressures in the US remain subdued, while the labour market still looks relatively weak. In addition, we feel that even though the Fed’s quantitative easing program may end in June, global liquidity will continue to grow as a result of government borrowing. Consequently, support from a liquidity perspective should remain in place for gold.

Gold support is at $1,477 and $1,461. Resistance is at $1,504 and $1,514.