Correction was seen in several commodity complexes as elevated price levels triggered profit-taking. The front-month contract for WTI crude oil surged to 90.76, the highest level in more than 2 years, as US President Barack Obama said he will agree to extend tax cuts. Gains were erased later in the day as US dollar rebounded sharply and the EU meeting made no progress on dealing with sovereign crisis. The WTI contract ended the day at 88.69, down -0.77%. The selloff continued in Asian session today and price was sent to as low as 87.67. Similar pattern was seen in gold prices. The benchmark contract rose to a record high of 1432.5 initially but then reversed and plunged to as low as 1396.7. The contract finished the day at 1409, down -0.50%. Currently trading at 1392, the metal extended weakness with price breaking below 1400 again today. Moody's said the extension of the current tax rates would not trigger a downgrade of the US' AAA credit rating if it's just for a temporary period of 2 years. However, 'the benefits to economic growth will not nearly offset the reduction in revenues coming from these measures and therefore it's a negative for government finance if nothing else is done'. The comments nevertheless raised concerns about the country's outlook and therefore we saw decline in Treasury prices with 10-year yields rising to 3.14%, the highest level since late-June. We believe increase in bond yields was hurting gold price yesterday. In the near-term, profit-taking may continue as gold and other precious metals retreat after recent rallies. The tax cuts alone is gold-positive as the fiscal stimulus would widen trade deficits. In an environment that both the US and Europe are struggling to lower deficits, safe-assets such as gold should be demanded. At the EU meeting yesterday, finance ministers failed to agree on new initiatives to deal with sovereign crisis. Possibilities to increase the size of the 750B euro rescue fund and joint issuance of bonds are ruled out. Moreover, IMF said the problem in Greece is 'growth, growth, growth' while the situation in Europe is 'serious'. We believe the situation, if deteriorates further, is supportive gold price. The ECB extended liquidity provision last week. This signaled the central bank has delayed the exit from non-standard measures and the interest rates will stay low for an extended period. This lowers the opportunity cost of owning gold. The fact that crude oil price slumps despite huge inventory draw indicates the market's focus on macroeconomic developments. The industry-sponsored American Petroleum Institute estimated crude oil inventory fell -7.34 mmb to 349.3 mmb in the week ended December 3. Gasoline and distillate stockpiles, however, increased unexpectedly. The US Department will release its data today and the market forecasts decline in crude, gasoline and distillate inventories.

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