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Oil And Gold Moving In Opposite Directions

Tue, Jan 6 2009, 04:22 GMT
by Oil N' Gold Team

Oil N' Gold

Oil price gained 5.3% to close at 48.81 Monday amid rising Gaza tension as well as OPEC's output reduction.

The 2.46M bpd output reduction announced in December will take into effect this month. If fully implemented, OPEC's 4.2M bpd cut in supply since September will slash oil inventory below 5 years' average. This, together with the recent geopolitical conflict, sent oil price higher.

It's already the 11th day for the Israel-Hamas conflict but there's no signs of an end. Instead, the fight intensified as Israel pledged to continue the attack until Hamas stopped its rocket attack. Yesterday, Israeli troops drove deeper on Gaza and serious fighting was found in the north part of Gaza. So far casualty is heavy with more than 500 Palestinians died , among which 25% were civilians, and 2600 wounded.

Riding on strong oil price, Asian stock markets gained for the 9th trading day. The MSCI Asia Pacific Index rose 0.8%. BHP Billiton gained 1.6% as oil strengthens for another day. Also helping the equity markets is weaker Japanese yen.

Gold continues to retreat after failing to re-test 892 high formed on Dec 28. Currently trading at 861.5, the benchmark contract remains to be pressured by dollar's recovery. The dollar index extended recent gain to 82.7 in Asia. Against the Euro and the pound, the greenback rose to 1.3617 and 1.4674 respectively.

Not only against the dollar, the Euro also drops against the yen as the market expects Eurozone's December HICP would have slowed to 1.8% from 2.1% in November, increasing the chance for the ECB to cut interest rates further in Jan 15. Despite a 75 bps reduction in December, the ECB's monetary policy remains conservative when compared with counterparts such as the UK and Switzerland and given the rapidly deteriorating economic condition in the 15-nation region, another cut from the current 2.5% policy rate is likely.

Published on  Tue, Jan 6 2009, 04:24 GMT