Gold, continued to enjoy support yesterday from a weak dollar and some physical buyers

Gold, continued to enjoy support yesterday from a weak dollar and some physical buyers taking advantage of the relatively low prices. In addition, the IMF’s proposed changes to its existing emergency programme sparked some optimism in alleviating the Eurozone debt crisis, and consequently gave markets a momentary respite.

However, it soon became apparent that this would not go nearly far enough in addressing the current scope of problems in Italy and Spain. Nevertheless, Asian buying of gold continued to provide support overnight, much as it had done the previous day, although, with Tokyo markets closed, it was left to Chinese buyers to keep prices on the up. This morning, support soon evaporated as markets were rattled by weak Eurozone economic data and a poor bond auction in Germany. PMI figures revealed a continued and worse-than-expected contraction in German (47.9 vs consensus: 48.5) and European industrial activity (46.4 vs. consensus: 46.5). This morning’s auction in Germany failed to obtain bids for 35% of the bunds on offer. This is keeping the euro on the back foot — this strong dollar environment continues to make it extremely difficult for commodities to make any solid gains.

In addition, we expect some liquidation ahead of the Thanksgiving long weekend in the US, so the potential for any upside today is limited. Given our long-term bullish stance on gold though, we’d advocate buying on dips to augment a strategic long position.

Gold support is at $1,675 and $1,655. Resistance is $1,712 and $1,727