Gold extends gain to 1226 in European session as investors' concerns on global economic slowdown intensified after Japan's GDP growth in 2Q10 missed expectations. Market sentiment turns bearish and demand for risky assets diminishes. Although WTI crude oil rebounds after plummeting to as low as 75.05, price continues to trade below 76 and downside risks remain high. Stocks decline in Asian and European session as investors take profits and stay away from equities for now.

We have a light economic calendar today. In the Eurozone, headline CPI surged +1.7% y/y in July after rising +1.4% a month ago. This confirmed the flash reading showing the region's inflation expansion at a fastest pace since November 2008. Divergent economic development in core and peripheral European countries and increasing inflationary pressure in the Eurozone are prone to complicate the ECB's monetary policies.

Change in European bond yields signals concerns over peripheral European economies heightens again. Spread between PIIGS (Portugal, Italy, Ireland, Greece and Spain) bonds and German bunds widened to levels not seen since early-May amid news revealing some debt-ridden countries are struggling to repay their debts. The focus this week will be on debt auctions as these should send the market a message of market confidence on the repayment abilities of these countries. Ireland is due to sell up to 1.5B euro of debt tomorrow. The country saw increase in borrowing costs at bond auctions last week. The average yield for 1 billion euro 6-month bills rose to 2.458%, compared with 1.37% last month, while that for 500M euro bonds due April 18, 2011 rose to 2.81%, compared with 1.8% a month ago. Rise in yields highlighted decline in investors' confidence. Gold's rally in May and June was driven by sovereign crisis woes in the Eurozone, further bad news for the area may push gold higher.

In the US session, the Empire State Manufacturing Index probably improved to 8.25 in August from 5.08 a month ago while the NAHB housing market index is expected to have climbed to 15 in August from 14 in the prior month.