Commodities | Jun 14 2012
In the US the market took on board comments from the Chicago Fed Governor that he would support more stimulus programs in the US. Although Evans is not a voting member, he has influence amongst his peers. We suggest that an extension of "Operation Twist” is being discussed as an easy alternative to support confidence. Any extension should do two things: firstly, instill some optimism and secondly, keep asset prices at levels lenders are comfortable with. In Europe, it is interesting as to the speed Spain’s initial bailout came. In Greece it took 17 sittings in Parliament, however in Spain it took the ECB the weekend to extend 100 billion Euro. This suggests that either the problem is Spain is simply too big to falter or that the European Financial Stability Fund has the liquidity to provide the bail-out in order to placate additional fear. In any case, there is the potential for a lot more money to flow into the system as a result and this should support the metals.
The additional money in the system and potentially more stimulus will have to be supportive to equities, and as we have a positive correlation between the two this should be supportive of the metal as well.
We continue to hold onto our core positions and remain supportive of higher prices. We were tripped into more longs on a break above US1635 which fizzled out, and so were stopped out.
Chart point:
Gold looks to be having a test to the topside. We expect US1625 soon then a test to US1635. We need to see a break above this level in order to see a test to a new and higher range.
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