Gold managed to rally yesterday as sentiment continued to sour

Shrugging off the downward momentum from a stronger dollar, gold managed to rally yesterday as sentiment continued to sour, prompting some safe-haven associated buying. With equity markets coming under pressure, even in the US—Alcoa’s better-than-expected results only came in after the closing bell—it was apparent that risk aversion was definitely back. The other precious metals, especially PGM, didn’t seem to benefit as much—no doubt still weighed down by the disappointing Chinese trade data, which signalled continued lacklustre global industrial demand.

However, we would also caution against being overly optimistic on gold as the rally could have been overdone, given that it occurred amid weak volumes and thin liquidity. During Asian market hours, profit taking was evident as gold came under selling pressure from the start. Heavy liquidations were also evident in platinum. Physical demand for gold has suffered after yesterday’s rally as participants appear to be waiting
for a sharper move lower before entering the market.

The dollar is tracking sideways this morning, which is keeping gold largely range-bound. European equity markets appear to be staging a timid recovery. Should this upward momentum hold and be extended into the US markets (as equity futures currently indicate could happen), we could see gold lose some support. The Fed’s Beige Book is being released later today, which could spark some price activity in precious metals as the market tries to glean from it the possibility of further quantitative easing.
Gold support is at $1,636 and $1,618. Resistance is $1,669 and $1,682.