Gold's rally accelerated after breaking through technical resistance. The benchmark contract surged to as high as 999.5, the highest level since February, before closing at 997.7. The precious metal jumped more than +4% over the past 2 days. Silver made a new year-high at 16.31 Thursday before settling at 16.29, +6%. The white metal gained over the past 4 days and will probably rose +8% this week. Today in Asia, profit-taking is seen. Gold and silver retreat to 991 and 16.06 respectively.
Enthusiasm has been seen again in ETF investment. Holdings in SPDR Gold Trust increased for the 3rd consecutive day to 1078.01 metric tons on September 3. Over the week, bullion holdings have risen +1.5%. Under ETF Securities, investment in gold has been making record high since last week and the momentum remains this week.
Concerning jewelry demand, Reuters reported that gold jewelry sales dropped -30% yoy in August due to weak imports by India and Turkey during the month. However, we believe consumption will pick up in September as it is a seasonally strong month. In fact, Tanishq, India's top jewelry retailer by number of stores, expects sales to pick up for coming big festivals.
The yellow metal's rally over the past 2 days was driven by investors' demand for safe asset as well as seasonal factors. Although breach of 974.3 resistance suggested gold' bull run has resumed for 1033.9 and then higher, the numerous failures in gold to break above 2009 high at 1007.7 leave us some doubts about the rally this time. Certainly, a close above 1000 should make us more convinced that a long term uptrend has resumed. Fear on inflation should be an important driver for gold. However, current inflation risk remains subdued and the market's expectation on inflation has also diminished (as shown in the chart below).
At ECB's September meeting, policymakers decided to keep interest rates unchanged at 1% and announced that the rate for the 12-month longer-term refinancing operation to be allotted on 30 September 2009 will be the prevailing rate on the main refinancing operations (no spread added over the 1% policy rate). These suggested the central bank will keep the monetary policy accommodative for some time. In fact, President Trichet stated it's not yet the time to exit.
The ECB Staff's projections have been revised upward slightly. The latest estimates for GDP are -4.1% (previous: -4.6%) and +0.2% (previous: +0.3%) in 2009 and 2010, respectively. The central bank's forecasts on inflation remained low with annual HICP inflations for 2009 and 2010 are projected to be +0.4% and +1.2% respectively.
OECD also revised up its forecast on G7 economies. The organization anticipated G7 GDP will contract -3.7% in 2009, compared with June's projection of -4.1%. Of the G7 economies, growth will be seen in the US, Japan, Germany and France in the 3rd quarter, while contractions will remain in Italy and Canada until the 4th quarter. Concerning emerging markets, China will continue to be the growth locomotive.
As the focus has been shifted to precious and industrial metals, energy complex prices were put under pressure. WTI crude oil slid -0.1% to 67.96 while Brent crude oil dropped -0.8% to 67. Product prices moved lower with both RBOB gasoline and heating oil plunging -0.9% to 1.79 and 1.74 respectively. Natural gas tumbled -7.6% to close at 2.51, the lowest level since March 2002 after the US Energy Department reported that gas storage rose +65 bcf to 3323 bcf in the week ended August 28.
