Continuing to hover around 70/71 in European morning, crude oil price likely remains sideways ahead of the inventory report by US Energy Department. Violence in Nigeria is expected to cause shipment disruption but it will not affect price much.

Gold price edges slightly higher from yesterday's close of 932.2 as the dollar pulls back against major currencies. Bombay Bullion Association reported that gold imports to India declined -11.5% mom and -39% yoy to 17.5 metric tons in May as rise in gold price restrained demand.

India imported 39.6 metric tons of gold in the first 5 months in 2009, just around one-third of the amounts purchased the same period last year. In February and March, the nation recorded zero import! In Rupee terms, gold peaked at 15 780 per 10 grams in late February as weakness in Indian Rupee made the price of gold look even more expensive. The situation did not only reduce purchase of the precious metal but also spurred sales of older pieces.

In the past, jewelry demand took up more than half of total demand for gold with India as the biggest consumer in the world. However, as of 1Q09, jewelry only contributed 33% total demand with the throne take up by ETFs. India's status as the world's biggest consumer of gold jewelry has also been replaced by China in during the period.

Performance of gold has also experienced seasonality as historical data suggested. The chart below showed that from 1999 to 2008, returns of gold from the periods of August to January were better than that from February to July in 8 out of the 10 years. Dating back to 1979, the phenomenon occurred in 18 times over the 30-year period. The reason we chose the second half as from August to January because we would like to include Lunar New Year which normally starts in late January and is one of the most important festivals in China.

We believe this happened because many festivals were concentrated in the second half of the year. In India, Diwali, or the Festival of Lights, is celebrated in October for the homecoming of Rama after being exiled for 14 years in the forest and for his victory over the Ravana. This is followed by the wedding season. In India, wedding is a big event and continues to several with several hundreds of guests attending the ceremony. Gold, of course, is the most valuable thing to show prestige of the bride and the family. Bridging the wedding season and Chinese New Year is Christmas which also triggers jewelry purchases.

Festive effect is just one of the many factors affecting gold's performance. Other factors include inflation expectation, USD's movement as well as central banks' gold sales.