Oil N Gold: Gold Has Further To Go!

Commodity price movements continue to be directed by macroeconomic concerns in the near term. Gold jumped to a new record high of 1637.5 on Friday as US growth missed expectations. The yellow metal's rally to new highs in 3 out of the past 5 days signaled market worries over uncertainties. The debt ceiling debate in the US has dominated the news headline for the whole week. The latest development is that House speaker Boehner's revise plan was passed in the House but was defeated in the Senate.

Meanwhile, the majority Senate leader Reid modified his proposal, incorporating Minority Leader Mitch McConnell's '2-step' process (the loan will be provided in 2 installments of 1.2 trillion, one immediate and another when the nation is near the debt limit again) to raise the debt ceiling. Economists generally do not expect the new plan to be the resolution for the debt problems.

On Friday, market sentiment was deteriorated further as US economic growth disappointed in 2Q11. GDP expanded an annualized +1.3% in 2Q11. The market had anticipated a strong expansion of +1.7%. For the first quarter, GDP growth was revised lower to + 0.4% from +1.9% estimated previously. Economists have revised down their forecasts for this year and 2012 after the report.

For example, Bank of America Merrill Lynch cut US' growth by -0.6% to just 2.3% in 2012 and pushed back the first Fed hike to 2013. Barclays Capitals reduced the country's growth forecasts to +1.7% and +2.4% for 2011 and 2012 respectively.....Read the entire article.


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