Equity markets in Asia and Europe tumbled as investors were unsettled by worries on global recession. Financial stocks faced extreme pressures after Citigroup announced another round of staff cut which signaled more trouble for the sector will be seen in 2009. Commodity prices followed the selloffs. Oil price fell below previous low at 54.67 to 54.13, one more step closer to our targets of 53.69 and 50.

After denying an emergency meeting on Nov 29, OPEC yesterday announced another bad news which a cut in demand forecast. The cartel expected an increase of 500 000 bpd in consumption in 2009. The forecast was 300 000 bpd lower than before.

US Energy Department will release inventory report tomorrow. According to Bloomberg survey, crude oil stockpiles probably climbed 1mmb in the week ended Nov. 14 from a week ago.

Market is focused on the inflation reports released in UK and US today. UK’s CPI for October fell 0.2% from a month ago but rose 4.5% from last year. Both figures were lower than market expectation. Lower oil, transport, and food costs pushed the inflation rate down that drastically. Oil prices have fallen by more than 60% from the peak of $147.27 made in July.

US will report October PPI today. Analysts expected it to fall by 1.8 from September, the most on record as economic slowdown caused demand for commodities to decrease. Recessions in developed countries as well as slower growth in China and India caused corporate to cut back consumption in raw materials. This is the main reasons for the contraction.

Stock market plunged in Asia and Europe. The MSCI Asia Pacific Index slipped 3.3 % and Japan’s Nikkei share average slipped 2.3% on Tuesday, catching up with other Asian markets decline yesterday. The MSCI World Index lost 0.8% to 852.09 in European opening.

Gold traded narrowly today. Currently trading at 735.8, the precious metal for December delivery fell slightly from yesterday close of 742.0. We believe gold’s recovery from 698.2 suggested consolidation form 684.60 remained in progress and upside to 788.3 resistance cannot be ruled out in near term.

Gold’s price movement is closely related to the dollar’s. Bank of America’s forecast that Dollar May Climb 12% against yen is probably negative for the precious metal’s outlook. Convergence of rate differentials has made the dollar rally against major currencies except for yen (due to carry trade reasons) in recent months. However, the Bank of America expected rate hike in US will come earlier than Japan, therefore, supporting the dollar. AUD fell to 0.6462 against the greenback after the RBA released a minutes signaling it’s likely for the central bank to further cut interest rate in the meeting in December.

In fact, recent market movements showed that people ‘think’ USD is ‘safer’ than gold and they tend to move to USD whenever there are signs of economic deterioration. We do not feel surprised if gold weakens further as economic condition turns worse. However, we are positive on medium to long term perspective of gold.
By OilNGold