Gold price continues to trade above 950 but with a soft tone even though USD pares part of the gains made last Friday. Silver follows suit and slips to 14.42. The silver contract gained +5.2% last week. In July, it rose +2.5% while surging +28% year-to-date. Performance of silver has outperformed that of gold so far in 2009. Gold futures edged slightly higher (+0.4%) last week. The yellow metal surged +2.8% in July while gaining +8% year-to-date.

One of the reasons for silver's outperformance is the catch-up effect from 2008. In 2008, silver dived -24% while gold, soaring +5.5%, was among the very few commodities that recorded gains. Gold/silver ratio has recently returned to more reasonable level of around 65, compared with above 70 in 4Q08. 5-year average is 58.

Improvement in economic outlook also benefits silver more than gold. Most of demand for silver comes from industrial application. A more rapid recovery implies better demand outlook for silver. At the same time, ETF demand for silver has surged recently while decline has been seen in gold. According to ETF Securities, silver holdings increased +2% last week to 19.24M oz while that for gold reduced -1.3% to 7.34M oz. On month-ago basis, silver holdings rose +0.8% while gold holdings plummeted -3.9%.

Crude oil price continues to trade within a narrow range of 70-71 in European morning. OPEC members' comments suggested that the cartel's production quota will remain unchanged at the meeting in September.

Over the weekend, OPEC President Botelho de Vasconcelos said that OPEC, the organization controlling 40% of oil production in the world, is satisfied with the current oil price level. In another occasion, a senior Kuwait oil official says the compliance by Gulf OPEC members (Saudi Arabia, Kuwait, Qatar and UAE) with quota has been over 90%. These comments indicated that the cartel will very likely keep production unchanged in September.

Stock markets open in Europe as investors worry about valuation. In the UK, the FTSE 100 Index plunges -0.5% to 4707. In Germany and France, both DAX and CAC 40 slide -0.7% to 5419 and 3499, respectively. We have a light economic calendar today but the Sentix investor confidence in the Eurozone did provide upside surprise to the market. The reading improved to -17 in August, better than market expectation of -26, from -31.3 in the prior month.

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