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Gold Declines After the 5−day Rally. Correction Should Be Short−lived

Fri, Oct 9 2009, 04:46 GMT
by Oil N' Gold Team

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Gold price rallied to 1062.7 before settling at 1056.3, +1.1%, as USD plummeted and crude oil soared. The yellow metal retreats to 1049 in Asia Friday, the first decline after surging for 5 days. We believe a correction is warranted as recent rally might have been overextended. However, any pullback should be short-lived. We remain bullish on gold in the long-term.

Investor Jim Rogers said that will not buy gold at current price as fundamentals do not support. However, he reiterated his long-term bullishness on bullion and anticipated it would reach 2000 in the next decade.

Crude oil price rallied to an intra-day high at 72.55 Thursday after the US reported a drop in initial jobless claims. Moreover, weakness in dollar against major currencies spurred demand for commodities. WTI crude oil finished the day +3% higher at 71.69. RBOB gasoline surged +3.5% to 1.78 and heating oil jumped +3.8% to 1.847.

Initial jobless claims fell to 521K in the week ended October 3 from 554K in the prior month. Apart from beating consensus of a fall to 540K, the reading has also reached the lowest level since the beginning of year. 4 week average also fell -9K to 540K from a week ago. The downtrend in claims is encouraging and should signal gradual improvement to employment conditions.

USD declined against major currencies as investors turned to stock markets and higher-yield currencies. The dollar index plunged to 75.68 before rebounding. Against the euro and pound, the greenback slid -0.7% to 1.48 and 1.6067 respectively. Against Australian dollar, the dollar plunged -1.9% to 0.9067 as unemployment rate in Australia surprisingly dropped to 5.7% in September.

According to Financial Times, a number of Asian central banks began intervention to curb the appreciation of their currencies. 'Asian central banks intervened heavily in the currency markets...to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China. The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China's decision in effect to re-peg the RMB to the dollar since July last year'. However, this did not seem to halt USD' weakness.

Today, crude oil price retreats and USD rebounds after the Fed Chairman Ben Bernanke said the central bank will be ready to tighten policy when the economy 'has improved sufficiently'. However, Bernanke stated at current stage 'my colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period'.

Published on  Fri, Oct 9 2009, 04:47 GMT

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