We still favour gold and see $1,630 and $1,600 as good levels to establish a long position for a move higher

Along with most other markets, gold and silver, came under heavy selling pressure yesterday after the FOMC minutes appeared less dovish than market participants had hoped for. It was largely the non-committal mentioning of further quantitative easing rather than a clear signal that there would be no further stimulus that markets have focused on. Once gain, the Fed mentioned that “if the economy lost momentum or if inflation seemed likely to remain below its mandate consistent rate” then it would engage in further monetary accommodation.

As outlined in our Quarterly Preview (released yesterday) our view on gold remains unchanged. We still favour gold and see $1,630 and $1,600 as good levels to establish a long position for a move higher. We forecast an average gold price of $1,790 for 2012. This bullish view has always been independent of whether or not a third round of Fed quantitative easing would occur.

We feel the global reserve accumulation will continue to grow (spearheaded by emerging markets and particularly China) and consequently provide the main impetus for gold-friendly growth in global liquidity during 2012. Overnight, the rout was arrested somewhat by decent physical buying, especially from South East Asia. However, this only served to keep prices steady, with the downward trend resuming in this morning’s trade. Should the euro/dollar manage to remain steady, we don’t foresee another leg down today.