Commodities steadied in European session as investors were pleased with the better-than-expected ISM data and Fed Chairman Ben Bernanke committed to leave interest rates low even after the economy strengthened. Gold moved within a narrow range today after the strong rally yesterday. We expected gold's uptrend to continue after consolidation. Bernanke's comments should act as another force sending the yellow metal higher in the near- and medium- term.
Gold has been showing its glitters since the Fed announced QE3. Indeed, the yellow metal's strength has also been helped by the ECB's new asset purchase program as aggressive easing from major central banks have raised inflation concerns and currency debasement, triggering flights of capital to the yellow metal. At a speech at the Economic Club of Indiana, Chairman Bernanke affirmed that aggressive stimulus would be sustained even after the US economy strengthened. He stated that the central bank expects "that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens". He also stressed that “many other steps could be taken to strengthen our economy over time, such as putting the federal budget on a sustainable path, reforming the tax code, improving our educational system, supporting technological innovation and expanding international trade". His comments should act as another catalyst for gold's rally. Bernanke's implication that low interest rates would sustain even after the recovery has gain traction would push gold as the cost of owning the metal is lower for longer.
The RBA surprisingly lowered the policy rate by -25 bps to 3.25% after standing on the sideline for 3 months. Governor Glenn Stevens stated that the central bank concerned about the sluggishness of the global economic recovery. As mentioned in the policy statement, “the outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside". Policymakers also viewed the decline in commodity prices as a drag on Australia's economy. On the job market, the RBA opined that it 'has generally softened somewhat in recent months' although “labor market data have shown moderate employment growth and the rate of unemployment has thus far remained low".
On the dataflow, the Eurozone's construction PMI climbed +0.5 point to 49.5 in September, compared with market expectations of 49.9. The bloc's PPI climbed higher to +0.9% m/m in August from a downwardly revised +0.3% a month ago. On annual basis, the reading accelerated to +2.7% from a downwardly revised +1.6% in July. For the rest of the week, the ECB and the BOE meetings would be in focus. However, we do not expect the former to follow up with more stimuli just a month after announcing the outright bond purchase program. The BOE would also likely pause for another month.
Oil and Gold Reports contributed by Oil N' Gold