Gold price stays firm in European morning as the dollar continues to weaken against major currencies. We receive strong trade data from China yesterday but most investors only related strong imports to crude oil and base metals. This is understandable as China has become the world’s largest gold producer.
However, strong imports can still help boost gold price, in an indirect way. Robust demand from China tightens physical markets and increases inflationary pressure. This will force the Chinese government to appreciate RMB, despite in a small magnitude. Appreciation in RMB is positive for commodity in general. At the same time, the disappointing US employment data in December may help reinforce the Fed’s stance to keep its policy rate low for an extended period. An environment of low interest rate together with rising inflationary pressure is supportive for gold.
The strong momentum in Chinese commodity demand in 2009 should carry forward to 2010 although the pace may moderate due to unwinding of stimulus measures. Copper imports rebounded sharply to 369.4K metric tons in December (+29% yoy) after plunging to 263.1K metric tons in October. Imports reached a record high of 477.K metric tons in June. Iron ore and concentrate also recorded a prominent +80% yoy increase to 62.16M metric tons during the month. However, not all base metals received strong demand. Take a look at aluminum. Despite strong annual increase, the amount imported in December stayed at depressed level (-73% from record high made in April 2009). The reason is that Chinese production of aluminum rose in recent months and it’s expected China will become a net exporter of aluminum in 2010.
Surge in demand for iron ore and concentrate has been driven by strong auto sales which drove demand for steel higher. According to the China Association of Automobile Manufacturers, China’s sales of passenger cars, buses and trucks rose +46% to 13.6M units, the fastest pace in 10 years. This also suggested that China has taken over the US’s throne as the world’s largest auto market.
Crude oil price falls for a second day in European session. Currently trading at 81.75, the February contract has plummeted -2.6% from a 15-month high at 83.95 made yesterday. Apart from crude oil, others in the energy complex also gets hammered as weather in the Northern hemisphere is expected to get warmer later this week. Heating oil drops to 2.16 while gasoline falls to 2.135. Both commodities reached 15-months Monday.
Source: Oil n Gold
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