Gold changes little in European session. While price has recovered in tandem with broad-based strength in the commodity market, liquidation from previous long positions and re-allocation of capitals to stock markets capped gold's upside. While investment demand for gold recedes as risk appetite improves, physical demand has picked up as price declines from its peak.

Despite a small number compared with that in 2008 (full year imports in 2008: 165.9 metric tons), Turkey, the world's third-largest gold consumer, is reported to have imported 19.93 metric tons of gold bullion in July, up +39% from 14.32 metric tons the same period in 2009. Apart from the lucrative double-digit growth, July's imports marked a significant improvement of gold demand from the first half of the year. Monthly imports from January to June averaged less than 1 metric ton a month!

US Treasuries advance, pushing bond yields lower, amid expectations of economic slowdown in the US. The 2-year government bond yields slipped to a record low of 0.5459% as the market anticipated moderation of personal incomes and spending in June. 10-year yields also fell for a 4th day to as low as 2.94%. Indeed, lower bond yields and the Fed's policy to keep interest rates lower for longer as a result of economic slowdown should be positive for gold. However, gold bears have been taking the deflationary threat to dump gold recently.

Discussions that the US economy will unfold like what happened in Japan in the 1990s- bad loans, deflation and economic stagnation- have reignited recently. While we are not as pessimistic as others in the market, we do believe the government may reintroduce QE should the outlook deteriorate further. QE measures are positive for gold as liquidity pumping generates worries about huge inflation afterwards.

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PGMs retreat after yesterday's rally but situation in South Africa's mining sector should lend support to prices. Reuters said that about 18000 workers at Impala Platinum will vote on a strike this week after wage talks between the union and management collapsed. Meanwhile, Aquarius Platinum said last week that closure of the Blue Ridge mine may trigger a loss of 18K oz of PGMs production this year.
Crude oil pares some of the gains recorded yesterday. China National Petroleum Corp forecasts crude oil consumption in China may only grow +9.5% y/y to 37M metric tons in 3Q10, moderating from +15% in 2Q10 and +22% in 1Q10, as government's measures to tighten credits reduced demand.

Price also falters below 82 after receiving some weak economic data in Australia and Europe. The RBA left the OCR unchanged at 4.5% for a third month. While the decision has been widely anticipated, Australia's retail sales grew only +0.2% m/m in June, compared consensus of +0.4% and building approvals contracted -3.3% m/m in June following a -6.6% decline in the prior month. The market had anticipated a rise of +2.1%. In Europe, UK' construction PMI dropped -4.3 points to 54.1 in July while Eurozone's PPI surprisingly eased to +3% y/y in June from +3.1% in May. Strength in the euro offset costs of imported goods.

The focus has turned to the personal income and spending report in the US. Growth in personal income probably eased to +0.3% m/m in June from +0.4% in May while personal spending stayed flat at +0.2%. Concerning the housing market, pending home sales should have rebounded, by +0.9% m/m in June, following a plunge of -30% in the prior month.