Investors pump money into platinum, palladium

20/10/2009 00:00 AST

Risk appetite continues apace. While we see growing down side risk to gold, the amount of liquidity flowing to precious metals is likely to limit any sell-off.

Of note is the substantial decline in the correlation between precious metals and the US dollar in recent days (the dollar has been trading around $1.4900 against the euro for the past few days). We doubt this correlation will remain low, and a weaker dollar should continue to support precious metal prices.

Upside for gold is still limited. We continue to see scrap gold entering the market. AT the same time, there was also some ETF gold selling.

ETF Securities reported selling of 8.06m oz on Friday. While we do not expect large-scale ETF selling, there is clearly some resistance in the gold market at the moment. As a result, we do not advise adding any new long positions. A correction towards $1,020-$1,030 could be a buying opportunity. Support is at $1,040 and $1,030, with resistance at $1,060.

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