Gold Prices Move Sideways

A bunch of gloomy industry data were released over the past few days and triggered profit-taking on oil price. The June contract for WTI crude slipped to as low as 56.55 in European morning Thursday before recovery in stock markets boosted oil price again. The black gold eventually closed 1% higher at 58.62.

All of IEA, OPEC and the US Energy Department revised down their forecasts on oil consumption in 2009 on the basis of sharper economic slowdown than previously estimated. While the US Energy Department announced on Tuesday its downgrade on world oil demand, (now expected oil demand to fall by 1.8M bbd in 2009, to drop 0.4M bpd more than previously estimated), both OPEC and the IEA released similar downward revisions. These, accompanied with declines in stock markets, contributed to the retreat in oil price.

Lack of upside surprise in macro-economic data made stocks open lower in Europe. In ECB's monthly bulletin, the central bank expected inflation to remain below the 2% target in 2010 while the outlook for economic activities has more risk on the downside. This made the benchmark indices in the region opened lower. However, recovery in the US session boosted sentiment again.

In the US, Dow Jones Industrial Average added 0.56% to settle at 8331 while S&P 500 Index gained 1.04% to 893.07. LIBOR's plunge to the lowest in 2 months indicated concerns on the banking system have been eased. Investors seemed to have ignored the fact that initial jobless claims, which increased to 637K, came in worse than expected.

Gold price continues to trade with a consolidative mode after surging to 1.5-month high of 931.4 Wednesday as the market has been struggling with dollar's movement and looming inflation risk.

The dollar index recovered to 82.88 before pulling back again and closed slightly lower at 82.39.although USD has weakened as concerns over the banking system in the US has eased significantly after the stress test result, we are still yet to confirm the dollar's downtrend has resumed. Investors hence remain susceptible to take huge long position in gold.

US' PPI rose +0.3% mom in April, better than consensus of +0.1%, after a -1.2% decline in the previous month. If the CPI date to be released also comes in higher than expectation, it should boost the precious metal further.