Gold remain under pressure

As with so many other assets, gold’s near-term outlook remains closely tied to Europe. On its own, we believe that the recent EU summit is not going to save the euro and not going to stop the market speculating against the bond market. But this is hardly surprising. A dusted-down Stability Pact was never going to be the solution. Instead, it was only likely to be the conduit
that might deliver some of the things that might finally end this crisis. At the top of this list seems to be a more helpful ECB.

Long term, we believe that this will benefit gold. At the moment, gold remain under pressure as: (a) the dollar strengthens;
(b) EM currencies such as the Indian rupee depreciate; and
(c) funding stress in Europe remains in place.

We expect physical demand to return in some strength on approach of $1,650. Key support for the metal lies at its 200d MA at $1,617. Since early 2009, gold has consistently bounced off its 200d MA. Unless funding issues in Europe deteriorate substantially (from current levels), we expect this support to hold. Apart from the 200d MA, support is at $1,676 and $1,654.