World Gold Demand
Yesterday's news that gold demand surged in Q2 of 2007 with the World Gold Council saying that global demand for gold in terms of tonnage rose by a very significant 19%, from 775 tonnes in Q2 '06 to 922 tonnes in Q2 '07 is very bullish.

Significantly, Indian gold demand in Q2 was at an all time record. Indian demand for jewellery and retail investment over the full year 2006 was 716 tonnes or 27% of the world total, and in the first half of 2006 was 307 tonnes or 26% of total. In the first half of 2007 it amounted to 528 tonnes, a massive increase of 221 tonnes or 72%, fuelling a 297 tonne increase in first half demand for jewellery and retail investment worldwide, from 1,183 tonnes to 1,480 tonnes.

Also Chinese and other Asian countries demand increased significantly. China had a 41 tonne increase to 184 tonnes or 11% of total as consumers benefited from stock market strength and the fact that the year of the Golden Pig is deemed to be auspicious for gold purchases, not to mention marriages and births. Vietnam's demand rose by 17 tonnes, a very healthy 54% rise in percentage terms, bolstered by 20 tonnes of gold investment demand, the second highest quarter ever. Buying surged on the June drop in price to $640, with bullion banks running out of inventory. Demand in the Middle East was up by 24 tonnes.

Gold Demand Trends is now including the increasingly important Russian jewellery market, noting that demand has grown strongly over recent years, reaching 70 tonnes in 2006 and achieving an all-time tonnage quarterly record in Q2 207, at 20 tonnes, a 27% gain year-on-year. Consumption is expected to continue growing briskly in the rest of the year.

The World Gold Council believes that the prospects for the coming months are good as we head towards the period of the year when demand is seasonally at its strongest. The overall fundamentals of the market continue to look robust.

We would concur with the World Gold Council said that worldwide financial turmoil will lead to safe haven buying of gold which will underpin the price going forward. This is likely when one considers gold's excellent performance over the medium to long term during stock market corrections and crashes.

Gold's Performance as a Safe Haven Asset
An example of gold's historic role as a safe haven asset is seen in the table above. The industry performance of Physical Gold Versus the S&P 500 during eleven stock market declines of 15% or more in the Post-War period (since 1946).

Silver
Spot silver continued it's recent sharp sell off and is trading down to $12.35/12.39 an ounce (1215 GMT).

PGMs
Platinum was trading at $1240/1244 (1215 GMT).
Spot palladium was trading at $336/340 an ounce (1215 GMT).

FX and Gold
Yesterday’s data showing a fall in the level of US net capital inflows in June is bearish for the USD in the coming weeks.

Oil
Light, sweet crude for September delivery lost US$1.38 to US$71.95 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract had risen 95 cents to settle at US$73.33 a barrel Wednesday. Increasing global systemic risk and their impact on the global economy and the likelihood that a tropical storm will miss critical infrastructure in the Gulf of Mexico was cited for the fall.

Stocks
There is more clear evidence that this is no longer merely a subprime issue rather a US and global mortgage and property crisis which is leading to global financial contagion.

Merrill Lynch has warned that Countrywide, America’s biggest home lender, is in danger of bankruptcy. “We fear the acceleration of margin calls and forced asset sales in the capital markets could lead to more problems for it to finance its mortgage operations.” Several mortgage lenders have seen their shares slump amid fresh concerns over the impact of global credit market turmoil on liquidity.

Another prime lender, Thornburg, had to put off paying its dividend as creditors issue margin calls to cover the falling value of the mortgages used as collateral for its loans.

Stock markets in Europe and Asia fell sharply Thursday following another tumble on Wall Street on persistent concerns over U.S. housing lend problems and their possible damage to global financial markets. In Europe, London's FTSE 100 fell 2.7 percent below the 6,000 level and other major indexes were down more than 2 percent. In Asia, the Nikkei 225 index fell almost 2 percent and South Korea's benchmark lost almost 7 percent.