Gold tumbled on Monday after faltering below the record high of 1266.5 amid profit-taking and limited impacts from G-20's communique and US economic data. The benchmark contract for the yellow metal slumped -1.40% and settled at 1238.6. Downside risk remains for gold in the near-term if there lacks catalyst to push price higher. However, the uptrend remains intact in the long-term as concerns over sovereign crisis in the Eurozone have not abated yet.
While the broad market sentiment appears to be less tense than early May, when sovereign crisis in peripheral European economies elevated, bond yields of the debt-ridden countries have surged in recent days. Indeed, 2-year and 10-year yields of PIIGS government bonds have returned to or exceeded the levels in early May. This indicates that the crisis is not over yet.
Expiry of ECB's 12-month LTRO later this week (July 1) signals a substantial reduction in excess liquidity. Facilities including the full allotment of the MRO, the 1-month LTRO, and the full allotment in the 3-month LTRO will not be sufficient to replace the 12-month LTRO which worth 442B euro. Stress of liquidity and surge in money market rates would highlight funding difficulties in the market. This may once again boost the flight for safe-haven assets.
Crude oil initially drifted to an 8-week high on hurricane concerns but then reversed gains as Tropical Storm Alex's moving direction was less threatening than previous expected. The front-month contract of WTI crude oil ended the day at 78.25, down -0.77%, while that of Brent crude slid -0.65% to 77.64. Prices remain under pressure in Asian session today.
Economic data in the US depicted a mixed picture yesterday. Personal spending grew +0.2% m/m in May after staying flat in the prior month. The market had anticipated only a mild increase to +0.1%. This signals households are more confident in economic recovery and the employment situation. However, Chicago Fed's national activity index fell to 0.21 in May, from a downwardly revised 0.25 in April. This reflects deterioration in the housing market.
Fed officials' opinions on US economic and monetary policy outlooks are also diverse. Federal Reserve Governor Kevin Warsh remained cautious that financial conditions have become less supportive and reiterated the pledge to keep interest rates near 0% for an extended period. However, Richmond's Fed President Jeffrey Lacker said that the FOMC is entering a period when 'every quarter, it's going to be a legitimate question as to whether to raise rates or not'.