Poor demand in physical gold from China ahead of the New Year celebrations

Gold were unable to sustain their upward momentum into the overnight session in Asia, trading mostly sideways. Poor demand out of China, both in terms of futures and physical buyers, contributed to the lacklustre performance. This is surprising, given that we usually see a seasonal pick-up in physical gold demand from China ahead of the New Year celebrations.

This morning, we saw a slight upward bias return, most likely on concerns over the Eurozone and associated safe-haven buying. A sudden drop in the dollar after successful Italian and Spanish bond auctions has seen a resurgence in Gold. However, given the problems facing the Eurozone, we don’t feel this can adequately boost confidence. Consequently, we regard
this as a knee-jerk reaction in the euro, which should soon fade taking Gold back down.

In terms of today’s ECB announcement, with no rate cut generally expected by the market. However, our G10 analysts thinks otherwise. Especially gold and silver, could benefit from a surprise cut as this would make it clear that the central bank is committed to maintaining liquidity. Eskom’s troubles meeting South Africa’s electricity demand continue to grab headlines. As we mentioned yesterday, we feel the attention is overdone . As yet, no planned residential blackouts (load-shedding) have been announced, which would most likely be Eskom’s first course of action should power supply come under serious stress.

Gold support is at $1,641 and $1,627. Resistance is $1,659 and $1,662.