London, 13 January 2010 - China’s decision to increase the amount of reserves its banks require spooked investor risk appetite yesterday, triggering long liquidation across commodities and weighed on equities. Base metals closed broadly lower with copper down 1.5% and zinc 4%, as did the precious complex with gold closing off 1.75% and both platinum and palladium finishing lower after setting fresh multi-month highs earlier in the day. In addition crude fell more than 2% while reports of record US corn inventories hit grain prices with the CRB Index finishing down 1.6%. The news from China also dented equity sentiment with the Dow and S&P closing down 0.3% and 0.95% respectively and has triggered a deeper correction in Asian markets overnight with the Nikkei currently down 1.3% and the MSCI 2.1%. The reduction in risk appetite also prompted dollar short covering with the Dollar Index trading back to unchanged by the close however the greenback has edged lower this morning with the Euro trading higher after Greek Finance Minister George Papaconstantinou said Greece does not need bailing out and was on the right track to solving its problems. Economic today will show French CPI, UK Industrial Production, US Federal Budget and the Fed Beige Book. Gold opened Tuesday in a firm mood, bolstered by a weaker dollar, trading to $1158.25 in early Europe. The metal became more rangebound across the day, trading $1145-55 before falling sharply over the last hour to close at $1129.90. The yellow metal has held above $1125 this morning however we expect the dollar to dominate short-term direction with gold potentially testing chart support at $1120/1114/1106 in the coming sessions. However, despite the possible impact of tighter money supplies in China we expect gold to maintain its bull-trend over the mid to longer-term as investors continue to diversify away from Fiat currencies and offset inflation concerns. Silver closed down 1% after trading between $18.80-18.15. The metal will be looking to gold in the coming sessions while the metal could gain further leverage against gold should the AU/AG ratio break below 60.92. Chart support is expected between $18.10-17.40. Platinum and palladium pushed to multi-month highs of $1627 & $443.50 during Tuesday’s European session before reversing in US trade, closing down 1.1% & 1.3% respectively at $1571/426. Despite the scale of longs added over the past few weeks the PGMs are likely to be supported by bargain hunters in the coming sessions on a combination of improving economic indicators and increasing investment demand.

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