Market sentiment strengthened in the NY session in a quiet trading day, due to Apple's announcement of a new dividend plan. Wall Street soared with the DJIA and the S&P 500 gaining +0.05% and +0.40% respectively. In the commodity sector, crude oil extended gains on Monday despite speculations that Saudi Arabia may increase output. The recent rise in oil prices has also triggered growth concerns with the IMF managing director Largarde warning that 'the rising price of oil is a new threat that could derail the recovery'. The front-month contract for WTI crude oil climbed to a 2-week higher of 108.24 before settling at 108.29 while the equivalent Brent crude contract ended the day largely unchanged at 125.71. On the contrary, gold continued its consolidation below 1700. UBS downgraded its 1-month price forecast to 1550 from 1775.
Speaking in Beijing, IMF's Largarde stated that 'the global economy is not yet out of the danger zone' and 'financial systems are still fragile, public and private debt is still too high and unemployment is still a major problem'. She also warned of the negative impacts that high oil prices can have on global economic growth. Although Saudi Arabia reiterated that it could take up the disrupted oil supply in Iran, the market continued to bet on stronger oil prices.
Recent speeches from the Fed Chairman Ben Bernanke signaled that further quantitative easing becomes less unlikely. This has pressured gold prices. Additionally, India has imposed import duties on the yellow metal. In order to raise government revenue and reduce fiscal deficits, the government doubled the import duty on gold to 4%, following recent increase in the customs duty. Yet, we expect the impact on gold price is limited.
At the RBA minutes released in Asia Tuesday, the central bank delivered a more hawkish tone by saying 'members noted that the past month had seen an improvement in the prospects for the global economy, with European policymakers making progress in addressing the region's debt and financial problems. Major downside risks were seen to remain, but the probability of a very bad outcome in the near future had receded a little further'. Policymakers unveiled that they adopted a 'wait- and- see' approach in monetary decisions. In coming months, the central bank will continue to weigh the gains from the mining investment boom against the strength in exchange rate.