Gold rebounded for the first time in 3 days as the sharp selloff late last week spurred buying interests. Downgrade of Greece's rating raised concerns in sovereign crisis in the Eurozone again and this in turn boosted gold demand. Currently trading at 91.5, WTI crude oil price remained at elevated level. Price slumped on Friday but strong support was found above 90 as fuel demand soared and equities strengthened.
Fitch Rating lowered Greece's credit rating to BB+, or junk, on January 14 as the country's 'public debt sustainability is still very fragile and renewed access to market financing uncertain'. Moreover, the rating agency said 'while the IMF-EU program assumes that Greece attains market access in 2012, Fitch believes that in the current market environment a high degree of uncertainty surrounds this goal and unfilled financing gaps could resurface'. The downgrade raised concerns about sovereign crisis in the European periphery again although successful government bond auctions by Spain and Italy last week reduced sovereign debt fears.
Last week, the euro soared as driven by disappointing US jobless claims data and reduced sovereign concerns. Gold was, however, only modestly helped by euro's strength. Indeed, we believe reduction of sovereign risk concerns in the Eurozone is negative for gold.
Fed Chairman Ben Bernanke's comments about ebbing deflationary risk may have weighed on the precious metal. At a forum in Virginia, Bernanke said that the risk of deflation has 'receded considerably' and the growth outlook has picked up. These comments spurred speculations that the scale of quantitative easing may be limited. QE2 has been a positive driver for gold as investors worried that QE measures may raise inflation. If further QE measures are limited, investment demand for gold may also be reduced.
Commitments of Traders:
Speculators had mixed views towards the energy complex. Net length for crude oil futures soared +19 619 to 169 085 contracts as WTI crude price surged. Net length for heating oil futures rose while that for gasoline futures declined. Prices for both fuel, however, soared during the week. Net shorts for natural gas futures plunged -19 027 to 199 035 contracts.
Speculators were generally bearish towards precious metals. Net length for gold futures plunged -24 946 to 177 372 contracts while that for silver futures dropped -766 to 29 269 contracts. For PGMs, net length for platinum and palladium futures slipped -1 055 to 24 727 contacts and -424 to 13 999 contracts respectively.