Gold's rally accelerates after breaching 1000. The December contract surges to as high as 1009.4, the highest level since March 2008. A close above 1000 should provide more evidence that the long-term uptrend has eventually resumed.

Why isn't a confirmation, but just 'more evidence'? Jewelry contributes more than 50% of total gold demand. Over the past few years, strong rises in gold price have been accompanied by strong demand for gold jewelry. Although in 1Q09, when the yellow metal surged to 1007.9, jewelry declined on both quarterly and annual basis, we saw robust physical investment on coins and gold bars during the time. However, both jewelry demand and physical investment remain weak so far. Although capitals have been flowing into ETFs again, we would feel more convinced if there's pickup in purchases in jewelry, coins and gold bars.

Fear for inflation seems to have returned after G-20 leaders said the time for tightening has not arrived yet. Rather, more stimulus measures are required to ensure sustainable economic recovery. The chart below shows that inflation expectation has risen over the past few days. While gauge is quite volatile, it can provide certain explanations on gold's strong rise these days.

Silver soars to as high as 16.86, the highest in 13 months. Price has jumped almost +50% since the beginning of the year and has outperformed gold's rally of around +14%.The white metal gains both on revival of world economy (silver is mainly for industrial uses) and gold's strength as safe haven asset. At 60, current gold/silver ratio has returned to a more appropriate level.

Crude oil price rises above 69 in European morning as driven by rally in gold and weakness in the dollar. Currently trading at 69.5, the benchmark contract may recapture 70 again amid robust sentiment in the commodity markets. Event to watch is API's inventory report after market close as it serves as a predictor on the US Energy Department inventory data.

Saudi Arabia's oil minister Ali Naimi said that crude oil market is 'in good shape' and current price level is good for both consumers and producers. His comment is shared by Kuwait's oil minister, Sheikh Ahmed al-Sabah, who stressed yesterday that the OPEC group is not going to low the production target.

Stock markets edge high as driven by encouraging economic data. In the UK, industrial production rose +0.5% mom July, compared with consensus of +0.2%, after rising +0.6% in the previous month. On annual basis, the gauge compacted -9.3% during the month while June's reading was also revised up to -10.7%. UK's FTSE 100 Index gains +0.5% to 4959. In Germany, trade surplus widened to 13.9B euro in July from 12.1B euro in June. This beat market anticipation of a decline to 11.3B euro. Although industrial production in Germany surprisingly contracted -0.9% mom in July, the DAX index adds +0.5% to 5491.

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