Gold benefited from yesterday’s more-dovish-than-expected announcement from the Fed

Unsurprisingly, Gold benefited from yesterday’s more-dovish-than-expected announcement from the Fed. Policy remained unchanged, however the Fed stated that current conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through to late 2014”. Previously, the Fed had assured markets that the fed funds rate would remain low at least until mid-2013. No concerns over inflation were expressed and the FOMC remained committed to maintaining a “highly accommodative stance for monetary policy”. All this is good news for precious metals, as evidenced by the marked price reaction.

However, we would expect prices to ease off as the euphoria subsides and profit-taking increases. Overnight already, in Asia, we saw some profit-taking emerge which kept precious metals from rallying further—remaining steady for most of the session. While physical demand for gold is largely absent in the Far East (due to New Year celebrations), current prices have scared away any potential interest from Indian buyers. For the first time since mid-November 2011, Standard Bank’s Physical Gold Flow Index (available on SBHF ) has dipped into negative territory, indicative of net selling.

In addition to the lift from the Fed’s statement, concerns over global supply are keeping PGM prices buoyant. Although industrial action at Impala Platinum Holding’s Rustenburg mine appears to be drawing to a close, it is feared that lost production will be greater than originally thought. Concerns have also recently been raised that Russian inventory sales of palladium will slow significantly in 2012.

Gold support is at $1,672 and $1,629. Resistance is $1,737 and $1,757.