Gold: Gold climbed to a new record high last week, just shy of the $1600 an ounce level. Gold prices have risen for ten consecutive sessions, matching a winning streak from four decades ago. This is despite seasonal weakness in demand. Clearly, slowing growth and sovereign debt concerns have increased the appeal of gold as a safe haven and hedge against uncertainty.
As gold prices rise higher, there could be greater volatility in the days ahead. Gold may takes its cue from ongoing negotiations to raise the U.S. debt ceiling. With the August 2 deadline approaching, the impetus is on the Republicans and Democrats to compromise and come up with a plan to reduce the deficit and debt levels. While more political wrangling is expected, we think that both parties will eventually be forced to some consensus as the alternative scenario of a default is simply unthinkable. Should progress be made in the week ahead, this could reduce uncertainty in financial markets and encourage profittaking in gold.
Market Summary
Precious Metals: Gold prices rose by more than 3% to a new record high last week. The new record for spot gold now stands at $1594.16 set last Thursday. Gold also rallied to new peaks in euro and sterling terms. Fears of debt contagion in Europe and a lack of progress in talks to raise the U.S. debt ceiling fuelled gold’s upward ascent. Data from the CFTC showed speculators sharply raised their bullish bets in U.S. gold futures and options last week. Speculators in COMEX gold held a net long position of 222,184 lots, adding 44,393 lots. This reflects increased appetite for bullion as a safe haven.
Crude Oil: U.S. crude oil rose for a third consecutive week, rising 1% to above $97 a barrel. Inventory data and optimistic demand forecasts provided a supportive backdrop despite macroeconomic concerns on sovereign debt. Data from the EIA showed that U.S. crude inventories fell 3.12 million barrels in the week to July 8. This was more than expected. The EIA also said that it expects oil markets to tighten as we head into 2012 due to increased oil demand from emerging economies.
Currencies: The euro weakened against the dollar after Irish debt was downgraded to junk by Moody’s Investors Service and yields surged in Italy, drawing the euro zone’s largest debtor into the region’s financial crisis. The Swiss franc and yen were the top performers against the greenback as investors sought safety amid warnings from ratings companies about U.S. and Europe.
Indices: U.S. stocks fell this week amid concern the debt crisis in Europe is spreading and American lawmakers are putting the nation’s credit rating in jeopardy. European stocks posted significant weekly drop as concern mounted that the sovereign debt crisis will spread to larger nations such as Italy and Spain. Asian stocks also fell as credit rating agencies put the U.S. on review for a possible downgrade and Federal Reserve ruled out immediate further stimulus, as criticism from Republican senators highlighted the potential backlash to additional monetary stimulus.
