Gold tumbled after hitting a record high yesterday. The benchmark contract for the yellow metal plunged to as low as 1231.6 before settling at 1240.7, down -1.40% and the deepest one-day drop in a month. Profit-taking and strength in USD triggered the selloff.
Today in Asia, price initially slid further but recovery followed. We remain bullish for gold's outlook as safe-haven demand should persist as crisis in the Eurozone remains there. At a conference in Paris, ECB governing member Christian Noyer said that 'some banks have started facing increasing funding problems...The situation reflects a general state of uncertainty which, left unchecked, could have significant consequences on financial stability and the real economy, as was the case during the last part of 2008'. Moreover, Fitch's downgrade of BNP Paribas SA and S&P's comment that Spanish banks will face years of difficulty reminded investors of the crisis. Decline in gold price should spur buying interests.
Crude oil surged to a 6-week high at 78.92 before paring gains in US session. The front-month WTI contract ended the day at 77.82, up 0.83%. Brent crude settled at 79.21, up 0.60%, after rising above 80 earlier in the day.
In Asian and European sessions, financial markets rallied as driven by China's pledge to increase flexibility in RMB movement. The Wall Street extended strength initially but then reversed after the US Congress remained skeptical towards China's announcement. Schumer, Vice Chairman of the Joint Economic Committee of Congress, said 'this vague and limited statement of intentions is China's typical response to pressure' and he demanded for more specific terms from China in the next few days or the US would move forward with the trade measures. The Wall Street closed in the red with DJIA and S&P 500 losing -0.1% and -0.4% respectively. Reversal in US stocks hurt sentiment and pared gains in oil prices.
Focus of the day is UK's emergency Budget. In the coalition agreement published on May 11, the new government pledged to significantly accelerate reduction 'in the structural deficit over the course of a Parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes'. However, recent comments from PM Cameron suggest that the austerity measures would be less aggressive than previous anticipated. Other economic data include German IFO, Eurozone's current account, Canadian CPI and US' existing home sales data.