Provided by CPM Group, Vol. 2, No.37 - September 13, 2010
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Welcome to the Weekly Market Views report from DGCX, providing you with a snapshot of what׳s happening in the energy, precious metal and currency futures markets.
Please note that the observations and views expressed in this newsletter do not reflect the views of DGCX and are solely the view of the writer (CPM Group).
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Commodities Overview |
Currencies Overview |
Gold and silver prices have been trying to forcefully break above $1,260 and $20 over the past couple of weeks. At these historically high levels there has been dampened investment and fabrication demand, which has helped cap price gains. A retreat in prices may spark the demand needed for the break above recent resistance levels. Investment demand for both gold and silver has been firm. Economic conditions, although improved over the past several quarters, are still not at prerecession levels. Unemployment around the world remains high, especially in large consuming nations. This has contributed to the wide variation in economic indicators over the past several quarters. The restocking of inventories in late 2009 and earlier this year helped foster the economic recovery, but with high debt burdens on balance sheets of both consumers and governments, spending is likely to be constrained going forward. With investors earning low returns on fixed income investments, gold and commodities have become attractive. Gold and silver will continue to appeal to many investors for their safe haven attributes and as a hedge against volatile financial and economic conditions. Oil prices meanwhile may remain subject to the swings in the financial and economic landscape, with supply and demand fundamentals exerting their influence on occasion but more on the medium to longer term price trends.
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The U.S. dollar’s activity against the euro, pound, and yen may be of continued consolidation this week. Although underlying fundamentals for each of these currencies are beginning to provide a sense of direction, this should be much clearer in the weeks ahead. The dollar made moderate gains against the euro and the pound early last week as concerns rose over the credibility of the euro zone banking sector stress tests. Speculation rose over the completeness of distressed debt reported by euro zone banks. The dollar held on to most of its gains against the euro, but lost ground to the pound later in the week. The yen meanwhile continued to appreciate last week, although was capped at 120 cents. The Japanese government is becoming increasingly concerned that a further appreciation in the yen will dampen exports, a major contributing factor to the country’s gross domestic product. Safe haven demand from investors for the currency has been firm and there also have been reports of increased buying of yen by China. The rupee has been volatile over the past several weeks despite strong economic data released for India week after week. Financial and economic developments in industrialized economies have been providing increased direction to the rupee.
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DGCX Prices & Daily Volumes |
Market
(as at Sep 9, 2010) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
Gold ($/ounce) |
$1,245.70 |
-0.19% |
▼ |
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Silver ($/ounce) |
$19.860 |
-0.08% |
▼ |
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Euro ($/Euro) |
$1.271 |
-1.44% |
▼ |
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GBP ($/GBP) |
$1.544 |
-0.10% |
▼ |
1.553 |
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INR ($/100 INR) |
$2.144 |
0.13% |
▲ |
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JPY ($/100 Yen) |
$1.192 |
0.68% |
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WTI ($/b) |
$74.250 |
-0.47% |
▼ |
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ADV (5,834)
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Economic Indicators
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
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0.6% |
U.S. Dollar Index |
▲ |
82.66 |
0.64 |
0.8% |
T-Bills
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▲ |
0.14% |
0.02% |
16.7% |
DJIA |
▲ |
10,463 |
14.84 |
0.1% |
FTSE All World
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▲ |
193.71 |
3.42 |
1.8% |
Source: Bloomberg Data |
COMMODITIES |
Crude Oil |
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WTI oil prices may edge lower next week on profit-taking, but prices are expected to be supported around $74 by recent supply disruptions in North America. A decline in United States oil inventories kept crude prices between $72 and $76 for most of last week along with a range bound U.S. dollar. On Friday 10 September prices rose above $76. Enbridge, a Canadian pipeline operator, was forced to halt the flow of crude oil on a large pipeline from Canada to the United States following the discovery of a leak on 9 September. The pipeline has a capacity of 670,000 barrels per day, roughly 3.5% of crude oil consumption in the United States. This has constrained the supply of crude oil from Canada, as regulators have yet to allow the restart of another Enbridge pipeline that was shuttered in July. Crude oil prices may head lower once Enbridge repairs the leak, however, an increase of stock levels of crude in the United States could weigh on prices.
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Gold |
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Gold prices are forecast to move between $1,230 and $1,266 this week. A decline in prices toward $1,230 is expected to stimulate both investment demand and fabrication demand for the metal. Combined gold exchange traded fund holdings reached 65.78 million ounces on 8 September, off from the record high 65.93 million ounces reached on 1 September. The recent run up in assets such as equities reflects an increase in risk appetite among market participants. This increase in risk appetite is very fragile, however, with several political and economic factors having the potential to derail global economic growth. Any weakness in gold prices may be seen as a buying opportunity, which could help push prices to the upper end of the above stated range. Prices are expected to face significant resistance in settling above $1,266, without any material negative news over financial and economic conditions. If such news were to enter the market prices could potentially rise toward $1,300. This is unlikely to happen this week, however. |
Silver |
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Silver prices are likely to weaken from current levels before they rise. The metal’s price supportive fundamentals remain in place, with any weakness in price seen as a breather from the recent rally. Prices could decline toward $19.40, if they slip below this level they could move toward $19. Silver prices at these levels are expected to attract significant buying interest from market participants, which could potentially push prices toward $20 or $20.50. Investors in silver exchange traded funds (ETFs) have continued to increase their holdings even at high prices. This suggests investors expect prices to continue rising. Combined silver ETF holdings stood at 498.5 million ounces on 9 September, a record high. U.S. Mint silver coin sales totaled 2.45 million ounces in August, up 15% from the same period last year. Gartner revised higher its estimate for global semiconductor revenue growth in 2010 to 31.5% over 2009, up from 27.1% in its second quarter estimate. This is positive for silver fabrication demand given the use of the metal in semiconductors.
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CURRENCIES |
Euro / Dollar DEUR (US $ quoted in cents per Euro) |
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The euro may trade between $1.26 and $1.29 this week. The euro fell 1.2% on 7 September to settle at $1.2687 from $1.2877 the previous day. A report released that morning suggested that euro zone bank holdings of government debt securities were larger than accounted for in bank stress test results, effectively understating banks’ exposure to sovereign debt risk. The cost of insuring against default of sovereign debt of financially burdened European countries has been rising over the past several weeks, although eased late last week. Despite concerns regarding the European banking sector and government debt problems, investors’ risk appetite has been improving, which has provided some support to the euro. A Portuguese government bond auction last week proved successful. |
Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) |
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The rupee is forecast to trade in a volatile fashion this week, between 213 cents and 217 cents per 100 rupees. The currency fell to an intraday low of 213 cents on 7 September on renewed concerns regarding European sovereign debt problems, as investors moved toward safe haven currencies. The rupee rose thereafter toward 215 cents. Foreign investment into India’s financial markets continues to be strong, helping to push domestic equity values higher. The Sensex settled at 18,800 on 9 September, up 317 basis points from 3 September. Industrial production grew by 13.8% in July from a year ago, which was sharply higher than industrial output growth of 5.8% in June year on year. The Reserve Bank of India is scheduled to review its monetary policy on 16 September. An interest rate increase could provide the impetus for the currency to rise above 217 cents.
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Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) |
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The pound could trade in a range of $1.53 to $1.55 this week. Concerns over European sovereign debt problems may have dampened investor interest in the pound early last week. However, bargain hunting coupled with positive leaning economic data and a rise in investor sentiment pushed the pound toward $1.55 in the middle of the week. By week’s end the currency fell as data revealed that the United Kingdom’s trade deficit grew more than expected in July, perhaps showing positive consumer spending, but weakening exports. Although fiscal austerity measures are expected to temper economic growth in the United Kingdom, they do not begin take effect until 2011. Concerns that the economic recovery in the United Kingdom may be slowing this year have kept the pound from rising much higher since early August.
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Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) |
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The yen is likely to move between 117 and 119 cents this week. The currency surged early last week toward 120 cents, but eased to 118 cents later in the week. The Japanese prime minister last week revealed details of a proposed 920 billion yen stimulus plan, aimed at boosting consumer spending and tackling unemployment. Japanese officials made what seemed to be stronger comments regarding possible intervention measures against further currency appreciation. The ruling party’s election for prime minister, to be held on 14 September, may determine whether the current regime will be able to carry out its fiscal and currency intervention measures. A move above 120 cents should not be surprising over the next couple of weeks, unless investors expect that the Japanese government can effectively prevent a further rise in the yen.
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Further Information
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Tel: +971 (0)4 361 1616 Email: info@dgcx.ae |
CPM Group is a leading independent commodities market research and consulting firm. CPM focuses on various commodities markets from precious metals to soft commodities. In its twenty three years as an independent company, CPM has consistently delivered unique, market-leading research and services to clients ranging from individual investors to leading international organizations worldwide. For more information and additional research please contact Adam Crown at +1 (212) 785 - 8324 or acrown@cpmgroup.com or visit www.cpmgroup.com. |
Copyright CPM Group 2009. The views expressed within are solely those of CPM Group. Such information has not been verified by the DGCX, nor does DGCX make any representations as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change. While every effort has been made to ensure that the accuracy of the material contained in the reports is correct, CPM Group or DGCX cannot be held liable for errors or omissions. CPM Group or DGCX are not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here. This report is distributed weekly by DGCX to provide market participants with information and statistics related to specific commodities and currencies. CPM Group, a commodities consulting company, produces this report for DGCX. Visit www.cpmgroup.com for additional information.
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