Strength in gold returned as questions about health in US financial sectors triggered selloff in USD and uncertainty in stock market. On Monday, the benchmark contract for gold rose to an intra-day high of 1063.4 before closing at 1054, +1.3%. Today in Asia, the yellow metal extends the rally and trades at 1065. Test of the record high at 1072 is likely in the near-term.
USD and Japanese yen dropped as US economic data beat expectations. The ISM manufacturing index rose to 55.7 (consensus: 53) in October from 52.6 a month ago. Concerning the housing sector, pending home sales surged +6.1% mom in September, compared with market expectation of +0.4%, following a +6.4% jump in the previous month. Moreover, construction spending climbed +0.8% mom during the month despite market forecasts of a -0.4% decline.
The strong readings revived market sentiment which diminished rapidly last week as some data releases disappointed investors. USD lost ground against the euro (-0.3%), Canadian dollar (-0.6%), Australian dollar (-0.6%) and New Zealand dollar (-0.4%).
Stock market initially advanced as driven by encouraging data. However, the rally faded after the Fed's Greenlee said that 'poor loan quality, subpar earnings and uncertainty about future conditions raise questions about capital adequacy for some institutions'. Dow Jones Industrial Average, surging to 9859 in morning session, ended the day just +0.8% higher at 9789. Similar pattern appeared in S&P 500 Index which rose to as high as 1052 before paring gains in the afternoon. The benchmark index eventually added +0.7% at 1043.
Gold usually shines when the dollar plummets and when global market outlook becomes uncertain. This is the situation we are facing currently. Although some economic data have surprised to the upside, we are yet to confirm the recovery is sustainable. Risk aversions soared rapidly last week amid worries that global economic growth has run out of steam. Bankruptcy of CIT banking group acted as another signal that US financial sector was not doing as good as the market anticipated.
IMF announced in its website that it sold 200 metric tons of gold the Reserve Bank of India for about $6.7B. According to the IMF, the transaction involved daily sales from October 19-30 at market price and the average price was about $1045/oz. While it's the first sales of precious metal in 9 years, it did not have much impact on price movement as IMF has been approved to sell gold earlier this year and the agreement was on agenda. In fact, it's encouraging that the Indian central bank still bought gold at current high price level.
Crude oil price remains stable at 78 after the +1.5% rally yesterday. While strong economic data and buoyancy in stock market supported the energy complex, Russia's warning of possible gas supply disruption to the EU also spurred buying interest. Heating oil and RBOB gasoline rose +2% and +1.5% respectively while natural gas plunged -4.4%.