Crude oil trades narrowly in European morning. As USD rebounds after Fed Chairman Ben Bernanke's speech about policy tightening, commodities pare gains. In the energy complex, WTI crude oil pulls back to 71.3, heating oil to 1.836 and RBOB gasoline to 1.766. In the precious metal complex, Comex gold retreats to 1050 while silver and platinum fall to 17.6 and 1345 respectively.

Investors viewed Bernanke's speech at a Board of Governors conference yesterday in Washington as a sign of potential tightening. However, there's nothing new compared with the views he expressed in a WSJ article on July 21: 'At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner'.

In fact, it's not likely for the Fed to increase interest rate anytime soon. In an interview, Dallas Fed President Fisher said that 'we are going to move when we have to move. But it's not now. Things are fragile but they're moving in the right direction. If you step back, it is going to take a long time to heal from the kind of severe shock we had, the severe correction we had. There is more confidence but it is not anywhere near robust in the job creating private sector'.

Although the dollar reverses ground after Bernanke's speech, the rally will not be sustainable. Global fundamentals should continue to weigh on the dollar. Bloating US trade deficit and strength in emerging market currencies such as RMB, should continue to pressure the dollar.

Natural gas rose +69 bcf, compared with consensus of +60 bcf, to 3658 bcf in the week ended October 2. According to the US Energy Department, storage stayed +15% above 5- year average. However, gas price climbed for a second day yesterday, partly driven by broad-based rally in the energy complex and partly amid expectations that demand will increase as we enter the winter heating season.

Among the several factors driving gold's rally, including dollar's weakness, limited central bank sales, reserve diversification and inflation expectation, we believe the most prominent one is dollar's weakness. The chart below shows that gold has broken the 2008 record high on October 6 only in dollar term while price remains well below historic high when denominated in other currencies.