Gold and silver continued to be weighed down by the disappointing Chinese trade number

Gold and silver continued to be weighed down by the disappointing Chinese trade numbers for most of yesterday—as we mentioned this does not bode well for reserve accumulation and consequently, global liquidity. Overnight trade was relatively lacklustre, with Asian participants showing little interest in the complex, although there was a spike in volumes just ahead of the Bank of Japan (BoJ) announcement. All in all, the BoJ made no significant changes to monetary policy, so markets were again left disappointed in terms of expectations of further easing. The announcement also gave the dollar some upward momentum,
which continues to weigh on precious metals this morning.

Caution appears to be the order of the day, as markets look to this afternoon’s FOMC announcement. The consensus view is that the Fed will leave policy unchanged—we concur. The reaction from precious metals will largely be dictated by the extent to which participants still harbour expectation for further monetary policy accommodation. As we pointed out yesterday, a lot of speculative length was removed from the precious metals futures markets after Fed Chairman Bernanke, in his address to US lawmakers two weeks ago, failed to mention the prospect of further quantitative easing. Silver and palladium now appear less vulnerable as net speculative length is currently more in line with historical norms. However, the futures market still appears
cautious on gold, as are we. Gold support is at $1,686 and $1,677. Resistance is $1,711 and $1,726.