Gold price rebounded strongly after being pressured in early trading session amid renewed concerns over defaults in peripheral European bonds. CDS for Greek bonds jumped to a record level while that for Spanish and Portugal bonds also soared. Weakness in market sentiment boosted flight for safety and sent gold modestly higher. The benchmark contract closed at 1245.9, up +0.90% but remained -1.63% below the all-time high at 1266.5 (June 21). Today in Asia, gold changes little but reduction in risk appetite should be bullish for the yellow metal.
CDS on Greece surged +197 bps to a record high of 1125 bps yesterday. Yield spread between 10-year Greek bond and German bond also widened to a 7-week higher of 7.925 bps at close. End-of-month index selling exacerbated the situation while investors reacted to Moody's downgrade of the country's credit rating which was upstaged by strong US data last week.
The Russian Gold Industrialists Union reported that total gold output (including by-product and scrap) in Russia, the world's 5th biggest gold producer, fell -6% y/y to 54.1 tons in the first 5 months of 2010.Outright mine output fell -9.2% to 44.5 tons. While the union forecasts gold production will increase slightly to 207 tons by the end of the year from 205.2 tons in 2009, many gold producing countries are facing difficulties in increasing output this year. The situation is supportive for gold.
Crude oil was rather volatile but ended the day a tad higher as driven by stronger-than-expected US durable goods orders and initial jobless claims. The front- month WTI contract edged higher, by +0.21%, to 76.51 while the corresponding Brent contract was largely flat at 76.8. Decline in stock markets and a federal judge's denial of the US government's request to delay an order allowing deepwater oil drilling to resume weighed on prices.
Durable goods orders dropped -1.1% m/m in May, following a +2.9% growth in the prior month, the market had anticipated it to contract -1.2%. Excluding transportation, the reading increased +0.9% (consensus: +1.1), after dropping -1% in April. Initial jobless claims fell to 463K in the week ended June 19 from 472K in the prior week. These data lent support to crude oil and other commodity prices.
Daokui Li, an advisor of People's Bank of China, RMB likely to rise about +3% against USD by the end of this year, assuming the euro stays around current levels against USD. The estimate is higher than our forecast of +3% within a year (i.e. by June 2011).
On the macro front, the US will release the final estimate of 1Q10 GDP which is expected to remain unchanged at +3% q/q. Moreover, the final reading of the University of Michigan's consumer sentiment index probably stayed at 75.5 in June.