Stabilization in sovereign crisis in the Eurozone weighed on gold and the yellow metal tumbled in NY session despite little changes in the euro and equities. Recent strength in the euro and decline in CDS signal market sentiment has improved while reduction in ECB's purchases of euro-zone government bonds indicates risks have diminished. The benchmark contract for gold plunged to 1156.9, the lowest since May 5, before settling at 1158, down -2.12%. Despite recovery to 1163 in Asian session today, further weakness is likely as the technical outlook has turned bearish and there lacks positive drivers.

Gold's rally in May and June was mainly due to worries over eurozone's sovereign crisis and potential disintegration of the eruo but there worries have markedly diminished. Despite little change against the dollar, the euro rallied against Japanese yen and Swiss Franc yesterday. (EURJPY reached a 10-week high, a 5-week high for EURCHF). Spreads between peripheral European bonds and German bunds continue to narrow while CDS also dropped.

Moreover, ECB's latest weekly financial statement shows that it bought just 176M euro of Eurozone government bonds in the week ended July 23. This was the lowest amount bought on weekly basis since the program began. Reduction in bond purchases on one hand signals increased stability in the Eurozone. On the other hand, it reduced the risks of high inflation as excessive liquidity was pumped to the market. These outcomes are negative for gold.

Crude oil slumped after failing to re-test 80. The front-month WTI contract plummeted to as low as 76.79 before recovering to 77.5 at close. The contract lost -1.87% yesterday. Ahead of the official report by the US Energy Department, the industry-sponsored API showed surprising crude inventory build.

API estimated that crude oil stockpile rose +3.08 mmb to 356.3 mmb in the week ended May 23. Inventories for gasoline and distillate also gained, by +0.85mmb and +0.407 mmb, respectively.

Economic data was mixed yesterday. In the US, Conference Board's consumer confidence slipped -3.9 points to 50.4 in July, compared with market expectations of 51.8. June's reading was revised up to 54.3 from 52.9. Consumers showed increased concerns over the job market and the 'jobs plentiful' component was unchanged at 4.3 while the 'jobs hard-to-get' component climbed to 45.8 from 43.5 in the prior month. The housing market did give some surprise as S&P/Case-Shiller Composite-20 Index rose +4.6% y/y in May, following a +3.81% gain in the prior month. Note, however, that it's May's reading and was distorted by the tax credit.

The US will report durable goods orders which probably rose +0.8% m/m in June after contracting -1.1% in May. Excluding transportation, the reading should have eased to +0.5% from +0.9% a month ago. The Fed Beige Book Economic Report will also be out later today. Economic developments across the 12 Fed Districts for the 6 weeks from early-June to mid-July probably showed signs of moderation.

Weekly change in inventory as of 23/07/10
Change
Market Expectation
Previous

Crude oil
 
+0.30 mmb
+0.36 mmb

Gasoline
 
-1.75 mmb
+1.12 mmb

Distillate
 
+2.00 mmb
+3.94 mmb

Comparison between API and EIA reports:

API (Jul 23)

EIA (Jul 23 )

Actual
Inventory
Previous

Forecast (using API's inventory level)
Inventory

Crude oil
+3.08 mmb
356.3 mmb
-0.24 mmb

+2.88 mmb

356 mmb

Gasoline
+0.88 mmb
222.3 mmb
-0.41 mmb

+0.12 mmb
226 mmb

Distillate
+0.41 mmb
162.3 mmb
+0.98 mmb

-4.31 mmb
162 mmb

API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.  

Source: Bloomberg, API, EIA