Financial markets change little in Asian session Monday as investors are still digesting the G-20 communique which committed to reduce deficits and restore stability and strength in the financial system, as well as to follow through on delivering existing stimulus plan to drive growth. WTI crude edged to 79.38, the highest level in 7 weeks before pulling back. Current price level is at 78.8, largely flat from Friday's close. Brent crude was also a tad higher but then retreated to 78.5. Note that WTI crude has returned to premium over Brent since June 23 as Cushing stock drew.
Crude prices were sent higher last Friday on the threat of hurricane in the Gulf of Mexico. According to the US National Hurricane Centre, the threat is still there as Alex, the first named storm of the 2010 Atlantic hurricane season, has regained strength to a tropical storm and may become a hurricane within the next 48 hours. The storm would affect production and clean-up efforts of the oil spill.
At the draft communique released after the G-20 summit, it stated 'unprecedented and globally coordinated fiscal and monetary stimulus is playing a major role in helping to restore private demand and lending. We are taking strong steps toward increasing the stability and strength of our financial systems'. At the same time, world leaders acknowledged 'the recovery is uneven and fragile, unemployment in many countries remains at unacceptable levels'. Therefore, follow-throughs on 'delivering existing stimulus plans, while working to create the conditions for robust private demand, are needed to sustain recovery. Stimulus are required to be delivered together with 'credible, properly phased and growth friendly plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances'.
The statement did not mention about RMB flexibility, reportedly at the request of China. World leaders said they were confident that the Chinese government would deliver what it promised. US President Obama said he expects 'as more and more market forces come to bear, that given the enormous surpluses that China has accumulated, that the RMB is going to go up and it's going to go up significantly... We are going to be paying attention over the next several months to make that determination'.
We said in previous articles that trade tensions and debates regarding RMB appreciation would trigger buying in gold. Given US' attitude towards the issue, we believe the tension has been eased in the near-term. Going forward, we will need to see if and how much China is going to deliver what it promised as the market generally viewed the statement released by the PBOC last week was a tactic to avoid RMB being the focus of the G-20 Summit.
Gold changes little after surging to 1259.5 Friday. Long-term outlook for the metal remains bullish as sovereign crisis should continue to drive demand for safe-haven assets. According to Xiangtong Shen, Chairman of the Shanghai Gold Exchange, capitals have been flowing to gold after the Chinese government implemented measures to curb excessive rise in property prices. Shen said demand for gold as wealth protection and a hedge against inflation will support prices.
Commitments of Traders
Sentiment remained bullish last week with crude, heating oil and gasoline showing another week of increase in net length. Net speculative long positions in crude oil gained for a second week, by +6.71K, to 39.64K as driven by price rally. Broad market sentiment also improved with stock markets surging and concerns over Eurozone's crisis eased temporarily. Net length in heating oil and gasoline accelerated with the former soaring +10.49K, or +62.86%, to 27.17K while the latter gaining +10.83K to 42.88K, the highest level in 5 weeks. Meanwhile net shorts in natural gas increased for the first time in 7 weeks as the rally lost steam.
The speculative community remained generally bullish towards precious metals last week. Net length in gold surged to 238.6K as price hit a new record high during the week. Net length in silver regained the 40K-level for the first time in 5 weeks as price soared. In PGMs, net length in platinum added +355 to 16.15K while that for palladium dipped -14 to 138.46K.