Gold: Corrective Move To 1200 Likely

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USD/JPY Dropped Strongly In Wave Of Safe Haven Flows

• Fed Chair Janet Yellen said the central bank is unlikely to reverse its plan to raise interest rates further this year, but tighter credit markets, volatile financial markets, and uncertainty over Chinese economic growth have raised risks to the US economy.

• Yellen said she expected continued US economic growth would allow the Fed to pursue its plan of “gradual” rate hikes, but her comments kept the central bank's options open.

• The Fed regards the current 4.9% jobless rate as close to full employment, and Yellen said that could fall even further if the economy grows as expected.

• The USD hit a 15-month low against the JPY today after comments from Federal Reserve Chair Janet Yellen gave investors no reason to change their minds that the next rate hike will be a long time coming. Highlighting growing risks facing the US economy gave investors the green light to buy the safe-haven JPY.

• The moves in currencies came in holiday-thinned trade, with markets in Japan shut for public holidays.

• Bears have broken 113.31 (50% retrace of 100.76 to 125.86 2014-2015 rise) and November 2014 112.42 low. We stay sideways now, as getting short at current levels is risky and a corrective move is likely in the near term. Breaking below a key level of 113.31 opened the way to 100.35 (61.8% retrace of the same 100.76-125.86 range) in the long term.

Gold: Buy At 1200

• Gold surged to its highest in eight-and-a-half months today as investors bet that the Federal Reserve could find it hard to hike US interest rates this year, while safe-haven demand amid a tumble in equities boosted the precious metals. The report of World Gold Council additionally supported gold.

• The WGC said that buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year. In the opinion of the WGC the trend will be continued.

• Chinese demand for gold coins surged 25% in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency. But stock market turmoil and a slowing economy knocked consumer sentiment and Chinese demand for gold for jewellery fell 3% from a year earlier, WGC said. Jewellery is the biggest source of demand for gold globally and a slight dip in such demand meant overall demand for gold was virtually flat in 2015.

• Central banks have been buying gold to diversify their reserves away from the USD and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013, the report showed.

• Gold price broke above an important psychological level of 1200 today, which opens the way to further gains. But we expect testing a support at 1200 first. We have raised our bid to 1200. Long-term outlook remains bullish.

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