London, 19 February 2010 - The precious complex remained in a volatile mood yesterday with gold opening under pressure in reaction to the IMF sales news before rallying back to challenge chart resistance around $1125 later in the day. Despite frothy EUR/USD flows risk appetite was broadly positive across the day with the CRB Index gaining 0.85%, the Dow settling up 0.8% and the S&P 0.65%; however the Fed sent risk tumbling late in the day, announcing a 25-bp hike in its Discount-rate. The move to ‘normalize’ markets triggered a sharp rally in the dollar with the DXY closing up 0.8%. Equities have come under pressure overnight with both the Nikkei and MSCI currently down over 2%. The currencies have seen a relatively flat start following the bounce in the dollar; the Euro is currently little changed against the dollar and trading 0.2% firmer against the Yen after data showed a 0.3% decline in Japanese All Industries Activity last month. Economic data today will show German PPI, German, French & EU Flash PMI and UK Retail Sales. Investors will also keep an eye on US CPI given recent concerns surrounding inflation/stagflation and the impact of quantitative easing. Gold opened under pressure yesterday, testing support around $1100 as Asian traders reacted to the IMF sales news. The metal initially traded $1098-1106 before bids picked up during European trade and the metal staged a rebound on the US opening as the dollar lost ground. Gold would remain bid across the session, testing towards chart resistance around $1125 shortly after the PM fix and later in the after-market session before the Fed Discount-rate announcement. Silver looked to gold for direction trading $15.67-16.27 across the day. Reaction to the news triggered a sharp correction however gold has found further support around $1100 so far this morning and we anticipate the current dip buying mentality to continue as background concerns over Sovereign debt, inflation and even deflation draw investor diversification. But, despite the Fed stressing the changes are not expected to tighten financial conditions the move could put a short-term dampener on risk appetite, potentially weighing on equities and commodities. Platinum posted a $30 range between $1503-33 yesterday as the market tracked currency flows and reacted to better than expected production results from Impala Platinum. Palladium mirrored the move, trading $426-39. Both metals are trading lower this morning as a result of the Fed news and will continue to monitor currency moves for short-term direction however we anticipate the improving macro-economic picture and favourable fundamentals should provide further background support while traders will closely monitor Zimbabwe’s proposed Indigenisation plans. Chart support in platinum is pegged at $1490/1470 with resistance above pegged at $1565/94. Support and resistance in palladium is seen at $405/449.

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