Gold extends strength after consolidation after news said that Indian central bank may buy more gold. The December contract for the yellow metal rallies to 1180 and looks to march to 1200.
Indian newspaper the Financial Chronicle said that the Reserve Bank of India might buy the IMF’s remaining amount of gold. According to the newspaper, ‘RBI is an independent body and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered’. Although the news was not yet confirmed by India’s central bank governor, Duvvuri Subbarao, it thrilled gold bulls.
In early November, IMF announced the sales of 200 metric tons of gold to the Reserve Bank of India (RBI). The amount represented about 50% of the total sales volume of 403.3 metric tons that was approved by the Executive Board in September. About a week later, the world lender reported that sold another 2 metric tons, out of the rest of its planned gold sales of 403.3 metric tons, to the central bank Mauritius at market price. If the RBI makes the purchase, then India will become the world’s 8th largest holder of bullion in terms of volume, surpassing holdings in the Netherlands and Russia.
Further news pushing gold price higher was news that Vietnam has been granted quotas for the import of 10 metric tons of gold since lifting an import ban this month and 6.8 metric tons had already come in.
Central banks in the world, especially those in Asian regions, have strong demand for gold as they want to diversify their reserves from USD.
Crude oil recovers to 76.4 after sliding to as low as 75.78 in Asian session. Market’s focus is on the inventory report by the US Energy Department (EIA). Consensus forecast crude oil inventory rose +1.5 mmb while gasoline stockpile increased +0.3 mmb in the week ended November 20. For distillate, the stockpiles probably remained unchanged from the previous week.
Released after US market close on Tuesday, the industry-sponsored API reported an increase of +3.35 mmb of crude inventory to 336.4 mmb last week. The report was quite disappointing as the build was much higher than market expectation of addition of +1mmb. According to the report, gasoline inventory rose +1.17 mmb to 212.2 mmb and distillate stockpile drew -2.36 mmb to 166.9 mmb.
While the EIA’s report may echo API’s bearishness in oil market, oil trading should remain thin ahead of Thanksgiving holiday.
| Weekly change in inventory as of 20/11/09 | Change | Market Expectation | Previous |
| Crude oil | +1.50 mmb | -0.89 mmb | |
| Gasoline | +0.3 mmb | -1.76 mmb | |
| Distillate | +/- 0 mmb | -0.33 mmb |
Comparison between API and EIA reports:
API (Nov 20) | EIA (Nov 20 ) | |||||
Actual | Inventory | Previous | Forecast (using API’s inventory level) | Inventory | ||
Crude oil | +3.35 mmb | 336.4mmb | -4.37 mmb | -0.39 mmb | 336 mmb | |
Gasoline | +1.71mmb | 212.2 mmb | -0.96 mmb | +6.32 mmb | 212 mmb | |
Distillate | -2.36 mmb | 166.9 mmb | +0.51 mmb | -0.50 mmb | 167 mmb |
API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department (EIA)for its weekly survey. Oil inventories from the API and EIA moved in the same direction for over 70% of the time, using data in the past 4 years.
Source: Bloomberg, API, EIA