Gold Surged Despite Weaknesses in Euro and Oil

Gold Surged Despite Weaknesses in Euro and Oil

Wednesday, April 21, 2010

Gold surged on Wednesday despite and weakness in the euro and decline in oil prices. Endless concerns over Greek sovereign crisis, as well as IMF's comments on financial stability and inflation outlook helped boost gold price. The benchmark contract soared to as high as 1151.2 before settling at 1148.8, up +0.84%. Other precious metals also rallied.

The euro slid another -0.4% against the dollar amid deterioration in Greece's debt situation. Greece's 10-year Treasury yield surged over 8% as price plummeted for a 7th day. The spread between the 10-year Greek bonds and equivalent German bunds widened to more than 500 bps. Investors speculated Greece will tap the EU-IMF loans at the Athens talks despite harsh conditions. Default risks in peripheral European countries also increased with CDS rates of Spanish and Hungarian debts surging.

In light of the heightened sovereign risk in the Eurozone and even the US and the UK, the IMF warned in its semiannual 'World Economic Outlook' that 'Sovereign risks in advanced economies could undermine financial stability gains and extend the crisis. The rapid increase in public debt and deterioration of fiscal balance sheets could be transmitted back to banking systems or across borders'.

Concerns about a Greek default have weakened the single currency and strengthened the dollar. The situation has limited gold's rally end even caused it to drop. However, in recent months, we observed the situation has changed - gold rose despite euro's weakness. We believe sovereign crisis in Greece, if persisted, will be positive for gold and investors eventually realize the precious metal's safe-haven property.

Crude oil price plunged as US oil inventory disappointed. The front-month contract for WTI crude oil ended the day at 83.68, down -0.2%. Price fell to as low as 82.92 shortly after the report showed increases in crude and oil product inventories.

After a week of draw, oil inventory resumed the uptrend and gained +1.89 mmb to 355.9 mmb in the week ended April 16. The market had anticipated a draw of -0.3 mmb. Cushing stock increased for a 5th week, by +1.85 mmb, to 34.1K barrels. The massive increase was a drag on WTI crude.

Gasoline stockpile surged +3.58 mmb as production and iimports rose +1.6% and +32.4% respectively. Demand slipped -1.86% to 9.152M bpd during the week. Distillate inventory also soared +2.1 mmb. Although imports reduced -42.4%, this was offset by -2.4% increase of production and -3.27% decline in demand.

Economic data to be released today includes Eurozone's PMIs in April and UK's retail sales in March. In NY session, the US government will report PPI, initial jobless claims, existing home sales and house price index.
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Gold Surged Despite Weaknesses in Euro and Oil Reviewed by NajlA On Wednesday, April 21, 2010, at 7:59 PM Rating: 5
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