PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

24 May 2010

1 Gold Price May Rise Further, While Crude Oil Price Fell
As A Weakening Euro Spurs More Speculation

2 Euroland’s Manufacturing Activities Slowed Down But

Services Activities Picked Up In May

3 China May Hold Off Interest Rate And Yuan Moves on

European Crisis

Tracking The World Economy...

Today’s Highlight

Gold Price May Rise Further, While Crude Oil Price Fell As A Weakening Euro Spurs More Speculation

Investors and speculators are putting more money into gold as they bet that the price will bounce back by another 27% to
reach US$1,500/ounce by the end of the year, after it fell to US$1,177.10/ounce, from a record US$1,249.40/ounce on 14
May. Indeed, investors and speculators are buying gold faster than the world’s biggest producers can produce. Exchange-
traded products backed by gold bullion added 42.5 metric tons in the week to 14 May, the most in 14 months, according to
UBS AG. China, Australia and the 16 other largest mining nations, on the other hand, produced average weekly output of
42.3 tons in 2009, researcher GFMS Ltd. estimates.

The buying interest has accelerated as some view gold as a safe haven now, reinforced by a 16% drop in the MSCI World
Index of 23 developed nations’ stocks since mid-April and a depreciation of the euro against the dollar to a 4-year low.
Earlier, gold was favoured by investors due to concerns of a weakening US dollar and a sharp rise in inflation. Some
investors, however, bet it on demand and supply. Supply from mines, which peaked in 2001, fell in five of the last eight years,
the GFMS’s data show. Companies are digging deeper to extract dwindling reserves, with mines in South Africa extending as
far as 2.35 miles (3.8 kilometers) down. Investment in gold, including bars and coins, on the other hand, almost doubled to
1,901 tons in 2009, exceeding jewelry demand for the first time in three decades, according to GFMS. Even central banks and
governments are buying gold as well, adding 425.4 tons in 2009, for a combined 30,116.9 tons, the most since 1964 and the
first expansion since 1988, according to the World Gold Council.

Separately, hedge funds sold crude oil at the fastest pace in almost eight months, cutting their bullish bets by 32%, on
concern a crisis in Europe will hurt energy demand. As a result, the speculative net-long position in crude oil futures and
options combined on the New York Mercantile Exchange (Nymex) fell to 89,335 in the week ended 18 May, the biggest
percentage decline since 29 September, according to the US Commodity Futures Trading Commission. The unwinding of
positions by hedge funds caused crude oil price to drop by almost 20% from a 19-month high of US$87.15/barrel on 3 May.
Crude oil for July delivery dropped 76 cents or 1.1% on 21 May to settle at US$70.04/barrel on the Nymex. The July contract
fell for nine consecutive days, losing 13% since 10 May.

As a whole, the above developments could be due to ample liquidity and cheap borrowing costs in the global financial system,
which have encouraged investors and speculators to take a bet on gold and crude oil based on their respective view on macro
economic developments.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 24 May 2010

The Euroland Economy

Manufacturing Activities Slowed Down But Services Activities Picked Up In May

◆ Based on the preliminary numbers released by the Markit Economics in London, Euroland’s purchasing manager index
(PMI) for the manufacturing sector eased to 55.9 in May, from 57.6 in April. This was the first slowdown since
manufacturing sector returned to growth in October last year, indicating that the sector’s activities are beginning to
turn weaker following a deepening sovereign debt crisis in the region. The PMI index for services sector, however,
strengthened to 56.0 in May, from 55.6 in April and a low of 51.8 in February. This suggests that the region’s services
activities continued to grow and at a faster pace. As a whole, the composite index for both manufacturing and
service industries fell to 56.3 in May, from 57.3 in April and 55.9 in March. This was the first easing in four
months, suggesting that economic activities in the Euroland will likely reach a peak in 2Q 2010, after picking
up by 0.2% qoq in the 1Q.

Asian Economies

China May Hold Off Interest Rate And Yuan Moves on European Crisis

◆ The Chinese authorities may delay a hike in interest rate until the 3Q, after raising mortgage rates and down
payments to curb record gains in home prices. The People’s Bank of China ordered banks in May to set aside more
funds as reserves for a third time in 2010 to absorb liquidity and prevent asset bubbles. China may also not in a
hurry to allow its currency to appreciate against the US dollar in view of a deepening European crisis that
threatens global growth. Chinese Premier Wen Jiabao said on 18 May that the global economic crisis is more complicated
and serious than expected and the foundations of the recovery remain fragile. Also, Europe is China’s biggest export
destination, making up 20% of its overseas sales. As a result, there are indications suggesting that the authorities
have become more cautious in putting in additional tightening measures. The US and China’s biggest trading partners
such as India have asked for a revaluation of the renminbi for a level-playing field for exports. China, however, has
reiterated that it would not succumb to external pressure and will only modify the currency based on its own economic
situation.

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