Crude oil price retreats as European stocks pare gains after rising for several days. Currently trading at 64.9, we believe further rally in oil price in the near-term is getting tougher without the support of strong fundamentals. Resistance level is seen at 66.37.
In Europe, benchmark indices fell despite better-than-expected UK retail sales. UK's FTSE slides -0.35% to 4478 while Germany's DAX and CAC 40 Indices drop -0.24% and -0.53% to 5109 and 3287, respectively. UK's retail sales surged +1.2% mom in June, significantly better than market expectation of +0.3% and a downwardly revised -0.9% in May. On annual basis, the reading increased +2.9% after a decline of -2% in the prior month.
Gold price also pulls back to 952.8 after rising to as high as 956.9. Lack of direction in USD against major currencies has made outlook of gold and other precious metals uncertain. Silver contract edges slightly higher to 13.745 while platinum futures climbs to 1181 from Wednesday's close of 1175.7.
Gold bulls were disappointed by the Fed's comment that inflation outlook remained tame despite the aggressive expansion in the Fed's balance sheet. It's widely understood that gold has been used as inflation hedge. However, one may not know that gold can also be a predictor of future inflation. The chart below shows that return in gold price peaks before peaking of US' CPI growth.
How about the performance of gold price during periods of high, medium and low inflation? In the 34 years from 1975 to 2008 under our coverage, average return of gold price was +17.2%, +4.9% and +1% during time of high (above +5%), medium and low(below +2%) inflation growth, respectively.
Platinum recovers after a days' drop as the Chinese Customs reported huge increase in platinum imports. The June data showed that platinum imports soared nearly +99% yoy. For 1H09, platinum imports went up +29% yoy. Imports for palladium also rose, gaining +4.5% yoy in June while dropping -10% yoy in 1H09. It's good to see increase in PGMs in China as it signals improvement in auto demand in the nation.