Weaker-than-expected existing home sales in December pressured crude oil price to as low as 74.06. However, the ability of the black gold to hold above 74 attracted buying interest and the front-month futures ended the day at 75.26, up +0.97%. Amidst concerns about slowdown in economic recovery, the rebound proved to be short-lived and crude oil retreats below 75 again in Asian session today.
Existing home sale in the US plunged -17% to 5.45M (consensus: 6M) units in December after rising to 6.54M units a month ago. The monthly decline was the biggest on record. Note that the drop in existing home sales closely matched with -16% fall in pending home sales in November, as the former is usually lagging the latter for 1 month.
However, crude oil price was supported by rebound in stock markets and weakness in the dollar as Obama's pledge to support the Fed Chairman Ben Bernanke for his second-term appointment stimulated appetite for risk assets. The Fed Chairman appeared to have gained more supports from senators in recent days.
Bernanke's confirmation for the second-term is crucial for the economic outlook as some believed opposition to him was due to 'political' issue. Dallas Fed President Richard Fisher said that the Congress used Bernanke 'as a political punching bag' so as to pressure the Fed to step up liquidity provision which would cause serious inflation.
After sliding for 3 consecutive days, gold price edged +0.65% higher to settle at 1096.8 as USD dropped against major currencies. Diminished speculations about an early Fed rate hike also supported the yellow metal. The Fed is expected to keep its policy rate unchanged at 0-0.25% at the January FOMC meeting. The Fed funds futures on January 22 indicated a 19% chance that the Fed will raise its target rate by at least 0.25% by June, compared with 26% a week ago and 60% before release of the December employment report.
Low interest rate environment accompanied with high inflation/inflation expectations are key factors to boost gold price higher. While we are staying in a generally low-rate environment, inflationary pressure in some countries remained subdued.
In Japan, the central bank pledged to hold the policy rate near 0% and said it's ready to expand measures to combat deflation. While major central banks in advanced economies are talking about unwinding QE and stimulus measures, the Bank of Japan, on the contrary, is planning to re-enter the expansionary regime as economic recovery loses steam and general price level remains in deflation territory.