Gold physical market, activity is brisk

After consolidating during the New York trading session, Gold traded mostly sideways in Asian markets overnight. For the most part, trading in Asian markets remained relatively light, with investor enthusiasm for gold still suffering the effects of reduced expectations of liquidity growth.

However, in the gold physical market, activity is brisk. Strong buying is providing support at the $1,695 level. Our Standard Bank Gold Physical Flow Index has pushed considerably higher this week so far (to levels last seen at the beginning of February), indicating that as a whole, physical market participants are net buyers and increasingly so. We must highlight though that February to June is typically a period where physical demand is weak (relative to the rest of the year). As a result, we believe that waning physical demand over the medium term could translate into a support level closer to $1,650.

This morning, a surge in the dollar (especially in relation to the euro) has added to the downward momentum of the complex. Eurozone debt crisis concerns are once again weighing on investors minds as we approach the Thursday deadline for the private sector involvement agreement. The Greek Finance Minister has rattled markets by taking a hardline and saying that the existing offer is the only offer that the government will consider, and that he stands ready to trigger the collective action clause which would force all bondholders to accept the deal.

Gold support is at $1,681 and $1,676. Resistance is $1,705 and $1,723.