Oil remained weak Monday although last week’s selloff has moved price to oversold territory. Slightly down by 2.5% to trade 55.64, recent decline should extend further for re-test of 54.67 and then 53.69. In the medium term, we believe the black gold could fall to around 50/bbl.
The market did not react much to the G-20 meeting held last Saturday. Instead, economic contraction in Japan and denial of OPEC meeting in November did weigh on oil price.
Leaders of the world’s largest developed and emerging countries met last Saturday to discuss about the ways to combat economic crisis and prevention of it. After the meeting, a joining statement was issued which blamed investors’ lack of understanding on the risks they were taking as the root cause of the crisis. In order to rescue banks and boost economic growth, the FED, as well as central banks in other countries, would inject more money to commercial banks to resume normal lending. The leaders also planned to establish “supervisory colleges” by Mar 31 2009 where regulators around the world would join together on a regular basis to discuss about the operations of financial giants. The aim of discussions would be to give regulators a sense of the financial safety of these institutions.
We do not view the outcome of the meeting as impressive and effective at all. Overall, the G-20 meeting was more symbolic than practical. For instance, the leaders pledged to endeavor to stimulate consumer demand. However, they failed to provide any concrete plans.
Japan’s 3Q GPD contracted 0.4% from the same period last year after shrinking 3.7% in Q2. This indicated that the world’s second largest economy, joining the Euro zone, has entered recession Stock markets were mixed in Asia after the news. MSCI Asia Pacific Index lost 0.7% to 82.49 and Australia’s S&P/ASX 200 Index slumped 2.5% to its lowest level since September 2004. However, the Nikkei 225 Stock Average rose 0.7% to close at 8522.58, led by drugs and railway companies, as investors shifted to shares which are relatively immune from slowdown.
OPEC’s president yesterday stated that is not likely for the cartel to call up an emergency meeting in November although it’s against the will of some members. The cartel would like to see some more data to judge the impact of the 1.5M bpd cut enacted in October. Moreover, a some members haven’t yet fully enforced previous quotas, the cartel believed it should wait for December for another cut.
Gold’s rebound continued after falling to 689.2 last week. Today, the precious metal for Christmas delivery edged higher to 754 before easing to 743.3 in European morning. The strong recovery from 689.2 made us believe that consolidation form 684.60 remained in progress and upside to 788.3 cannot be ruled out. However, if gold retreated and fell below 689.2, we would turn our view bearish again and expect a re-test of 684.6 first.
Gold has been moving in a downtrend after making a peak 1033.9 in March and since then, the COMEX contract has fallen by 28%. At the moment, investors are cautious about gold as a safe-haven asset as the precious metal has performed quite inline with other commodities which were abandoned by investors during recessions. Investors also liquidated their gold investments to cover losses in stock markets.
By OilNGold
