Gold price extends strength in European morning and rises to as high as 1023.3 amid renewed inflation expectations. Rally in stock markets driven by better-than-expected economic data drag the dollar lower. This also helps the yellow metal.
Apart from strong retail sales in August, the US PPI also beat market expectation by rising +1.7% mom in August after contracting -0.9% a month ago. On annual basis, the reading dropped -4.3%, compared with consensus of -5.4% and -6.8% in July. Core CPI increased +0.2% mom and +2.3% yoy during the month.
Released in the Eurozone, the 16-nation region’s CPI rose +0.3% mom in August after declining -0.7% a month ago. On annual basis the gauge dropped -0.2%. However, excluding food and energy prices, CPI rose +1.3%, compared with market expectation of +1.2%.
Investors await the US’ inflation report to be released at 1230 GMT. Headline CPI probably rose +0.3% in August as driven by +3.5% increase in gasoline price at the pump. On annual basis, the gauge’s decline probably moderated to -1.7% from -2.1% in July. Core CPI should have dropped on both annual and monthly basis as mainly driven by the Government’s ‘cash for clunkers’ program.
Although central bankers in major economies have stated inflationary pressure remained tame, investors concerned that policymakers would not be able to exit swiftly from the massive stimulus measures adopted since late last year when the time comes. If the exit strategies are not carried out in a timely manner, the world economy is at risk of falling into hyperinflation.
In concert with gold’s rally, silver price surges another +2% to 17.35. Gold -to-silver ratio continues to narrow (currently at 58.6), suggesting outperformance of silver relative to gold. Some analysts warned of excessive positioning on the futures markets for gold and silver. In fact, we do not advise developing long positions aggressively for now as both prices have entered overbought territories.
Crude oil price trades narrowly above 70 ahead of inventory report from the US Energy Department. Although consensus forecast another week of crude decline, the surprising increase in crude inventory and higher-than-expected surge in fuel stocks made investors more cautious about the energy market outlook.
Stock markets advanced in both Asia and Europe. In Asian session, the MSCI Asia Pacific Index soared +1.9%, the biggest increase since August 24. In Australia, the S&P/ASX 200 Index rose +2.4% as driven by rallies in Telstra and BHP Billiton. In Japan, the Nikkei 225 Stock Average gained +0.5% to 10271. The Index initially surged +1.7% but gains were erased after some analysts said the new Japanese Government (DPJ)’s policies may delay the nation’s economic recovery.
In Europe, UK’ FTSE 100 Index rose +1.% to 5116 although the ILO unemployment rate rose 7.9% in the 3 months through July, the highest level since 1996, from, 7.8%. Germany’s DAX and France’s CAC 40 also increase +0.9% and +1.3% to 5678 and 3802 respectively. In Germany, the ZEW expectation index increased to 57.7 in September from 56.1 in the prior month, suggesting improved investors’ confidence in the coming 6 months.