physical Gold selling is subdued with Indian demand still strong

As expected, the negative effect of yesterday’s announcement of a hike in Chinese interest rates proved to be short-lived. It was not long before the focus returned to concerns over the Eurozone debt crisis. Moody’s cut Portugal’s sovereign debt rating to below investment grade this week. In addition, the US debt-ceiling debate is also shaking the markets confidence.

President Obama is struggling to reach a compromise with Republicans who insist on spending cuts before they will agree to an increase in the US government’s borrowing limit. The risk-off sentiment maintained the upward momentum in overnight trade of gold and silver, after Asian markets initially opened as sellers. Despite the push in gold prices, physical Gold selling is subdued with Indian demand still strong. This leads us to believe that Indian buyers foresee further upside and are taking current prices in the fear that they might miss the dip. This, is coupled with risk aversion, is lending robust support gold.

The reaction of the euro to this afternoon’s ECB decision will be key to precious metal movements later today. The market largely anticipates a hike in rates which, given that this should support the euro, could benefit precious metals. This, coupled with a heightened aversion to risk, could spell further upside for gold and silver.

Gold support is at $1,514 and $1,500. Resistance is $1,539 and $1,549.