Dollar's Weakness on Election Day Helped Oil and Gold

Oil price continued trade within the range of 61.3 and 70.6 today. The benchmark contract fell to as low as 62.25 in European morning before rebounding to 67.77 due to strength in stock markets. We remained neutral on the near term outlook for oil and believed the black would continue gyrating within the above-mentioned range these few days as the market is waiting for the result of presidential election and rate decisions by ECB and BOE. Only a break of 70.6 would confirm recent decline has formed a low at 61.3 and upside to 76.12 would be seen.

Credit Suisse cut its 2009 and 2010 oil price forecasts to $60 (from $75) and $80 (from $100), respectively, on concern over slower Chinese demand. The bank expected world oil demand would be reduced by 300 000 bpd YoY and supplied would exceed demand 1.8M bpd. For China, estimated growth for 2009 would be flat (previous forecast at +4%) despite recovery of 5.4% in 2010.

The hope that emerging market economy would be immune from financial crisis in developed has faded. Chinese refinery giant Sinopec announced yesterday contraction of its refinery business due to lower demand while South Korea recorded less oil import last month. This evidenced demand outlook for oil is pessimistic.

Stock markets, recently the barometer of economic growth, were mixed today. In Asia, Japanese Nikkei rose 6.5%, catching up the broad-based rally Monday. However, Australian S&P/ASX 200 index dropped 0.15% despite a surprising 75 bps reduction in interest rate (now 5.25%) while the market expected it to be 50 bps. Stocks in Europe and US advanced today. Both FTSE 100 and DAX added 2% while DJIA rose 1.75% on Election Day.

Gold rebounded after holding above 717.1 low last Friday. Currently trading at 751.5, the December contract's outlook is slightly bullish-biased and upside to 778.3 cannot be ruled out. The dollar falls as investors awaiting result of the US Presidential election. The dollar's weakness against major currencies was caused by profit-taking after early rally, quiet US investors as they went to the poll as well as weak factory order data.

September factory order for the States slumped 3 times more than forecast. The figures came in at -2.5% after a revised 4.3% drop a month ago.

However, in the near term, there are several factors supporting the dollar - and pressuring gold. Barack Obama's victory is slightly more positive for USD. Also, ECB and BOE will be cutting interest rate Thursday, reducing attractiveness of Euro and Sterling given lower yields.

Outlook for other precious metals are not promising either. Luxury car maker, Bayerische Motoren Werke lowered its earnings outlook for the second time this year. This weighed on the price of platinum as 60% of its supplies were consumed in auto-manufacturing.