The dollar index extends Friday's sharp fall and plunges to as low as 82.29 in Asian session. Increase in risk appetite has driven investors from USD to equities and commodities. Against the euro, the dollar drops to 7-week low at 1.366 and break of resistance 1.3737 will lead further decline all the way to 1.4165.

We believe renewed bearishness in the dollar is positive for gold's rally. The precious metal for June delivery trades narrowly around 915 after rising 3% last week but pulled back slightly Friday after receiving better-than-expected US job data.

Conventional wisdom says high economic uncertainty, high expectation on inflation, weakness in dollar, low interest rate environment are the main factors for gold's rally. Moreover, gold price has traded with low or inverse correlations with stocks and USD because of the safe-haven and inflation-hedge characteristics of the precious metal. However, while gold has still been valued as an important hedge against inflation, the safe-haven appeal seemed to have diminished. The phenomenon is evidenced by gold's trading in line with the stock market while remained in opposite direction to USD.

Crude oil stabilizes after surging to 58.64, the highest since November 2008. Without supports from tightening in supply or improvement in demand, the 10% rally last week looks excessive. We expect a correction this week. In fact, CFTC's report showed that institutional investors have changed their bets in oil price -from longs to shorts. According to Commitments of Traders by CFTC, speculative short positions outnumbered long positions by 11 285 contracts on the NYMEX on May 5. It's the second time in 4 weeks.

While many investors have been thrilled by some better-than-expected economic data, recovery in industrial production is needed to bring a trough to oil demand. In the US, oil demand in the rest of the year will remain quite weak while recovery may be seen in emerging countries such as China. According to National Bureau of Statistics, implied total oil demand in China, while dipped 0.3% over a year earlier, stood at its highest rate since last September due to ramp up in refinery runs.

Commitments of Traders
  • Crude Oil: Speculatuve positions changed to net short again
  • Gold: Net long position in gold futures gained slightly for another week, price movement should be less votalite as speculative trades have declined signaficantly from previous months
  • Silver: Net long positions rose to 6-week high
  • Platinum: Net long position increased after falling for 3 consecutive weeks.