As we mentioned before, demand for gold will remain strong even after the US debt ceiling deal is done. After a brief pullback on Monday, the benchmark Comex gold contract resumed its rally yesterday, surging to a new record high of 1664.5 before settling at 1644.5, up +1.41%. The compromised agreement on raising the debt limit and reducing government expenses is passed in both the House and the Senate but market confidence has not improved. The focus is now on macroeconomic data which have shown increasing evidence of a global slowdown. Moreover, concerns over sovereign debt crisis in the Eurozone have re-emerged with Italian and Spanish yield spreads widening sharply.

The Senate voted 74-26 for the debt ceiling plan, which will increase US' debt ceiling until 2013 and cut spending by 2.4 trillion over the decade, after the House had passed it on August 1. Moody and Fitch affirmed the country's AAA ratings but the 'negative' outlooks in both agencies suggest downgrades are still possible. S&P has not commented after the bill but it said last week that any plan that involves a cut of less than 4 trillion would trigger a downgrade.

In the Eurozone, peripheral yield spreads widened further, especially in Italian and Spanish bonds, on high debt-to-GDP ratios. News said that Italy's Financial Stability Committee will meet later today to discuss the recent surge in bond yields while Finance Minister Giulio Tremonti will meet officials from the Bank of Italy.

Economic data have been disappointing recently. As suggested by the US GDP report last Friday, the June personal income and spending data were subject to downside surprises. Personal income grew +0.1% in June (consensus: +0.2%), easing from +0.3% a month ago while personal spending surprisingly contracted -0.2% in June (consensus: +0.2%) after staying flat in May. The ICSC-GS chain store sales also signaled fatigue in consumer spending. Sales dropped -0.3% w/w for the period ending July 30. From a year ago, sales gained +4.0%, decelerating for a third consecutive week.

Concerning oil -specific data, the industry-sponsored API reported that crude oil inventory dropped -3.31 mmb to 354.9 mmb in the week ended July 29. On fuels, gasoline stockpile gained +2.55 mmb while distillate added +1.40 mmb. The market expects the official DOE/EIA report will show stock-builds in all 3 categories mentioned above.

Weekly change in inventory as of 29/07/10 ChangeConsensusPrevious
Crude oil  +1.50 mmb+2.30 mmb
Gasoline  +0.25 mmb+1.02 mmb
Distillate  +1.50 mmb+3.39 mmb

Comparison between API and EIA reports:

API (Ju1 29) EIA (Ju1 29)
ActualInventoryPreviousForecast (using API's inventory level)Inventory
Crude oil-3.31 mmb354.9 mmb+3.96 mmb

+0.87 mmb

355 mmb
Gasoline+2.55 mmb212.2 mmb-0.64 mmb

-1.26 mmb

212 mmb
Distillate+1.40 mmb150.7 mmb+2.90 mmb-1.12 mmb151 mmb

API collects stockpile information on a voluntary basis from operators of refineries. Data from the API and DOE have moved in the same direction 71% of the time over the past 52 weeks

Source: Bloomberg, API, EIA