Central Banks Likely Remains Net Gold Buyer

Commodities extended weakness in European session as worries over global economic slowdown triggered profit-taking. Oil prices declined for a 4th day with the front-month contract for WTI crude oil sliding to a 2-week low of 106.2 and the corresponding Brent crude contract plunging to a 1-month low of 117.62. Silver continued its big slump and let the decline in the precious metal complex. The metal has tumbled more than -20% since last week, after failing to test 50. Notwithstanding safe-haven appeal, gold failed to gain on risk aversion. The yellow metal briefly broke below 1500 earlier in the day before buying interests emerged.

While being ignored, IMF's report on gold purchases by central banks in emerging countries reinforced the view that the yellow metal is being used as a portfolio diversifier in reserves. It is likely that central banks will remain a net gold buyer this year. The IMF reported that Mexico, Russia and Thailand added gold now valued at about $6 billion to their reserves in February and March. Mexico purchased 93.3 metric tons since January, raising holdings from to 100.2 metric tons. The addition raised gold's weight in total reserve to 4% from 0.2% previously. Meanwhile, Russia added +18.8 metric tons to 811.1 metric tons and Thailand bought 9.3 metric tons, increasing the holdings to 108.9 metric tons. Gold had hit record highs in February and March after correcting in January. Yet, elevated gold price has not damped central banks' appetite. We expect recent correction will attract more buying.

The latest news about the BOE is that the central bank decided to leave the Bank rate unchanged at 0.5% and the asset-purchase program at 200B pound. The statement was brief as usual. We expect more details in the minutes to be released on May 18 but the 3-way split vote on monetary stance likely remained. At the same time, the ECB left the main refinancing rate unchanged at 1%. The market is awaiting the press conference.

In the US, initial jobless claims probably slid -19K to 410K in the week ended April 30. Non-farm productivity might have expanded +1% in the first quarter, easing form +2.6% in 4Q10. Unit labor costs likely rose +0.8% in 1Q11, following a -0.6% a quarter ago. In Canada, housing data should remain weak with building permits contracting -2.5 m/m in March while the Ivey PMI dropped to 65.1 in April from 73.2 a month ago.

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Central Banks Likely Remains Net Gold Buyer