Gold largely track movements in the dollar

After pushing through the $1.600 level in New York trading, gold surrendered some gains overnight as Asian participants engaged in light profit-taking. Adding to yesterday’s optimism over China’s economy (the world’s second-largest consumer of gold), prices are receiving further support from the prospect of a surge in jewellery demand that analysts are forecasting for
2012.

However, this optimism has been largely balanced by a bearish report from the Bombay Bullion Association that predicts a 48% q/q drop in India’s gold imports for Q1:12 (India is the world’s largest consumer of gold). We acknowledge that the weaker rupee and higher interest rates pose a threat to Indian demand for gold, and we would not expect the seasonal effect to be as pronounced in Q1:12 as it has in previous years.

This morning we’ve seen gold largely track movements in the dollar, with some early but transitory dollar weakness contributing to a concomitant dip in the gold price. The rest of the precious metals have largely tracked gold, although palladium appears particularly weighed down perhaps due to lingering doubts over the health of the global economy.

To this end, the markets will be looking to US factory orders data out this afternoon. Analysts expect a spectacular recovery to 2.0% m/m growth in November, after October’s 0.4% m/m contraction. US vehicle sales data will be released overnight, which could have an influence on PGM. Total vehicle sales are expected to drop moderately in December to 13.5m (from 13.59m in November).

Gold support is at $1,580 and $1,552. Resistance is $1,623 and $1,636.