Commodities recovered in European session but the outlook remained cautious. Weeks of rally have brought gold to a 6-month high of 1790 last week. Profit-taking was seen since then but the yellow metal managed to stay above 1740 despite relative strength of the US dollar and renewed concerns over sovereign debt problems in the Eurozone. While we remained bullish over gold, some catalysts are needed to resume the recent rally and send the metal to 1800 and above. We believe these catalysts can be more aggressive monetary easing from the PBOC and/or dovish comments from the Fed.

Following the injection of RMB 290B into the financial system using reverse repo agreements yesterday, the PBOC announced that it would inject an additional RMB 180B through 14- and 28-day reverse repurchase agreements on Thursday. The net injection of RMB 365B (subtracting maturing reverse repos) into the market this week is amongst the biggest on record. Although the government remained confident on the country’s economy, with Liu Shiyu, a vice governor of the People's Bank of China , emphasizing that China's economic situation is “sound” and a slowdown is “desirable”, it pledged to implement further monetary easing policies to stimulate growth so it would comply with the annual growth forecast of 7.5%.

As the US Presidential election approaches, Obama appeared more aggressive on Iran. With a Treasury Department’s report describing that the National Iranian Oil Co. (NIOC) is “an agent or affiliate” of the Islamic Revolutionary Guard Corp., the US’ sanctions over the Middle East country are expected to be tougher. Geopolitical tensions are the usual factors causing big movements in commodities. While the impact was less significant yesterday (as the market attention was put on Spain), the fact that Brent crude was better supported than WTI crude was helped by concerns over prolonged Iranian oil supply shortage.

On the dataflow, durable goods orders probably contracted -55 in August, following a +4.2% gain a month ago. Excluding transportations, the reading might have gained +0.3%, after slipping -0.4% in July. Initial jobless claims might have dropped -7K to 375 in the week ended September 22. Pending home sales should have stayed flat in August after rising +2.4% in the previous month.

Oil and Gold Reports contributed by Oil N' Gold