PRECIOUS METALS - Gold looking to base build above $1700

27/01/2012 22:41 AST

Gold remained bid across Thursday as the Fed’s pledge to maintain its loose monetary policy until the end of 2014 bolstered commodities with the CRB Index settling up 0.3%. Gold extended to its best since December 8th, touching $1731.10; silver and platinum hit a 10-week peak while palladium touched $701, its best in four months. Profit taking heading into the close saw palladium finish the day in negative territory; however, the complex finished up a net 1%.

Despite the steady tone in commodities equity markets struggled for traction as Eurozone debt talks continued at a slow pace while US Jobless claims increased and New Home Sales proved weaker than expected at 307k v’s a forecast 321k; the Dow settled down 0.2% and the S&P500 0.6%. In the currencies initial euro strength saw the single currency up 0.55% against the dollar and 0.25% versus the yen, however the euro gave back ground later in the day as risk sentiment faded; EUR/USD finished down 0.1% and EUR/JPY 0.6%.

Data overnight has shown Japan continuing to battle deflation with Core CPI down -0.1%, Retail Sales meanwhile proved stronger than forecast increasing 2.5% from a previous -2.2% decline. Equities have seen a mixed start with the MSCI Asia Pacific Index currently up 0.2% while the Nikkei is off 0.1%; the yen has rallied however amid speculation of further intervention by the BoJ after Prime Minister Yoshihiko Noda said he expects the central bank to take “bold” actions to address the yen’s strength; the yen is currently up 0.4% against the dollar and euro.

The minute of the December BoJ meeting showed members remained concerned sovereign debt problems in Europe will be prolonged and could tip the global economy into recession, "Members shared the view that financial markets were likely to remain under strain for a protracted period since there was no immediate remedy to the sovereign debt problems in Europe."

Data today includes US Advanced GDP and Revised UoM Consumer Sentiment; ECB President Draghi is also scheduled to speak while the annual World Economic Forum kicks-off in Davos.

The precious metals have seen a steady start, although palladium has again run into profit taking around the Asian close/European opening. While the mix of low interest rates; oil driven inflationary pressures and ongoing debt issues in the Eurozone are supportive for gold, and the RSI (68.4) suggests the yellow metal has room over, momentum indicators are showing signs of slowing with the metal in need of some base building above $1700 while profit taking may be seen next week as Chinese markets reopen following New Year’s celebrations.

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