Commodity Update; Gold – 16 December 2014

Gold remains resilient, supported by economic and political risk

As political and economic uncertainty continued to build throughout the week, gold has found renewed support among the investor community, with strong offers repeatedly found at the $1190 level.

Key to price action for the precious metal has been ongoing uncertainty over the outcome of a Greek presidential vote and the implications for the nation’s future in the euro-zone. In addition the this, further uncertainty over both European and Chinese economies has also added impetus to investor demand for the metal.

In terms of physical demand, statements from the Indian Trade Secretary this week highlighted a six fold rise in the value of imports during November, when compared with the November before.

Although much of the increase is believed to be due to eased restrictions on imports, the news adds further to the argument for gold bulls, particularly in light of the reduced degree of likelihood that restrictions will be tightened again in the near term.

Looking ahead, all eyes are likely to remain fixed upon the presidential vote in Athens, and later; the FOMC quarterly projections, rate statement and press conference.

The FOMC event adds downside risk to gold as US policy makers are widely expected to adopt a more hawkish tone during future interactions with the media and the market, while any surprise agreement from Athens could also add further downside pressure to price action for the metal.

On balance, and all in all, we see risks for gold as skewed marginally toward the upside, given the contentiousness of the debate in Athens and the underlying endorsement that comes with a parliamentary agreement (more austerity).

On this note, we view a first time consensus agreement as unlikely, which is supportive of higher gold prices. However, this is a two way street as a surprise agreement would almost certainly result in a relief rally for risk assets and heavy selling of safer assets such as gold.   

Accordingly, we shall monitor developments here as they occur and report back to clients in due time.

Spot Gold // 10 minute Intervals

GOLD15DECE

 

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