Provided by CPM Group, Vol. 2, No.40 - October 3, 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 |
Precious and base metals prices spiked sharply higher last week. While gold prices tested record highs on a consecutive basis since 28 September, silver and other industrials metal prices rose to historic levels. Technical pressures such as the roll in open interest in the New York gold contract as well as continued weakness in the US dollar are helping drive prices of the metal higher. Specifically, there has been an enormous amount of open interest in the active October Comex gold and Nymex futures contracts, which needed to be rolled over into forward contract months. Once heavy buying from traders looking to hedge against firmer prices winds down, gold prices could come off sharply before moving higher. While silver may take some direction from gold, crude oil may struggle to hold onto recent gains. With seasonal maintenance scheduled in October at many refineries, dampening demand is forecast to weigh on crude oil prices. The inverse relationship between many commodity prices and the dollar has strengthened with the steady downward momentum in the dollar. Further declines in the dollar are expected to support commodity prices this week.
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The US dollar may continue to trend lower this week, after declining against many major currencies for nearly two months. By the end of last week the dollar fell against the euro to the lowest level since March. Declines also were recorded against the yen after US manufacturing expanded at the slowest pace in 10 months, discouraging demand for US assets. Speculation that the Federal Reserve will start buying bonds rose following statements from the central bank that more action may be needed to support the economy. The Fed continues to keep quantitative easing in its tool belt. The pace of the dollar’s decline has furthermore been amplified by positive signals in other leading economies. In Europe, banks are showing reduced dependence on loans from the European Central Bank, which is helping to shore up demand for the euro. With economic indicators expected to show minimal improvement in the US economy this week, last week’s direction in the dollar is likely to cross over into this week. However, given the ferocity of the recent sell-off, the US dollar could see some consolidation in the near term.
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DGCX Prices & Daily Volumes |
Market
(as at Oct 1, 2010) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
Gold ($/ounce) |
$1,318.20 |
1.63% |
▲ |
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Silver ($/ounce) |
$22.060 |
2.89% |
▲ |
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Euro ($/Euro) |
$1.377 |
2.16% |
▲ |
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GBP ($/GBP) |
$1.583 |
0.06% |
▲ |
1.591 |
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INR ($/100 INR) |
$2.238 |
1.09% |
▲ |
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JPY ($/100 Yen) |
$1.201 |
1.23% |
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WTI ($/b) |
$81.58 |
6.65% |
▲ |
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ADV (9,626)
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Economic Indicators
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
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0.7% |
U.S. Dollar Index |
▼ |
78.04 |
-1.35 |
-1.7% |
T-Bills
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▲ |
0.15% |
0.01% |
7.1% |
DJIA |
▼ |
10,830 |
-30.58 |
-0.3% |
FTSE All World
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▲ |
202.45 |
1.18 |
0.6% |
Source: Bloomberg Data |
COMMODITIES |
Crude Oil |
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WTI oil prices could rise toward $83, this week. A large withdrawal of crude oil stocks held in storage tanks on the United States’ East Coast provided the initial upward momentum to crude oil prices on 29 September. Crude oil inventories held in East Coast storage tanks totaled 9.9 million barrels on 24 September, down 17.5% from 17 September, according to the EIA. An EIA official later commented that this drawdown may have been an inventory reporting issue. Positive economic data and a weaker US dollar provided additional support to prices late last week. While expectations for economic growth are encouraging for crude oil demand in the latter half of the fourth quarter, continued inventory withdrawals are necessary to work off excess United States stocks that remain well above five-year averages. Peak refinery maintenance season in October is expected to result in weaker demand for crude oil until refiners resume operations. This may drag prices lower, toward $75, in the near future.
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Gold |
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Gold prices are likely to see some weakness before they continue on their upward trajectory. Prices touched record high levels every day, on an intraday basis, between 28 September and 1 October. Prices are expected to come off sharply on a short-term basis, before rising again. Prices could decline toward $1,300. If prices break below this level they could slip toward $1,280. The resolution of the New York October gold contract could trigger this decline. Market participants remain concerned about various financial, economic, and political issues. This is expected to drive investors toward gold because of its safe have attributes. Investors are likely to use the weakness in prices as a buying opportunity. Investors in exchange traded funds (ETFs) have been increasing their holdings, with combined gold ETF holdings reaching 66.6 million ounces on 30 September, a record high. On the upside gold prices could rise as high as $1,330. The US dollar is likely to continue weakening in the near future, which is expected to provide continued support to the price of gold.
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Silver |
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Silver prices are at historically high levels and are expected to continue rising this week. Any weakness in gold prices could potentially weigh on the price of silver, however. Silver prices could decline toward $21, albeit briefly. The market’s sentiment toward silver is a very positive, given that it benefits from both industrial demand and from being a safe haven asset. Investors in silver exchange traded funds have continued to buy the metal amid rising prices, which reinforces the positive attitude investors have toward this metal. Combined silver ETF holdings reached 517.2 million ounces on 30 September, a record high. Investors have added around 53.4 million ounces of silver to their holdings during the first three quarters of this year. Silver fabrication demand has also been faring well, with increased demand for the metal from the electronics and solar panel industry. Silver prices could reach $23 this week..
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CURRENCIES |
Euro / Dollar DEUR (US $ quoted in cents per Euro) |
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The euro may continue to trend higher this week, possibly toward $1.40. The euro rose by 6.5% in September, settling at $1.3628 on 30 September. Investor sentiment toward European banks’ ability to service debt improved last week, as euro zone banks borrowed less from the European Central Bank (ECB) than expected in September. $306 billion of special 3- to 12-month ECB loans expired on Thursday, reducing the money supply in Europe. An ECB member stated last week that other loans set to expire by the end of this year may do so according to schedule. Ongoing concerns regarding Ireland’s banking sector failed to temper the euro’s rise last week. The Irish government on Thursday estimated that it would cost $68 billion to bail out its banking sector, up from the previously estimated $44 billion. If the US dollar continues to soften, the euro could rise above $1.40 this week.
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Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) |
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The rupee may test 228 rupees per 100 cents this week. During intraday trading, the rupee touched a five month high of 224.1 on 1 October, up 6.0% from a trough of 211.51 on 31 August. Foreign investors remain positive over India’s economic growth. Foreign funds poured $7.1 billion into India’s capital markets during September, the largest monthly net inflow on record. Strong vehicle sales by India’s top automakers in September helped push domestic equity values higher in the latter half of last week. The Sensex rose to 20,445 on Friday, the highest level since January 2008. The Reserve Bank of India may intervene in the currency market if foreign investment inflows become excessive, according to an advisor to India’s Prime Minister. This may cap gains expected in the rupee this week.
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Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) |
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The pound may trade between $1.57 and $1.60 this week. Last week the pound traded mostly between $1.57 and $1.59 as several economic data releases in the United Kingdom failed to provide momentum to the pound to break out of its current trading range. The pound rose briefly above $1.59 on 30 September as housing prices in the United Kingdom rose 0.1% month-on-month in September, higher than market expectations of a 0.3% decline. Weaker than expected PMI manufacturing data released on 1 October weighed on prices late last week. A stronger pound also deterred foreign demand for United Kingdom exports for the first time since July 2009. This could keep the pound below $1.60 in the near term.
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Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) |
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The yen could head higher toward 122 cents, but it is likely to face downside pressure this week. Last Friday the yen broke above 120 cents, up from 118 cents on 27 September. The yen’s value is rising toward the high level seen prior to the Bank of Japan’s selling of 2.12 trillion yen on 15 September. Japan has not intervened in the currency market since 2004. The Japanese prime minister has reiterated last week that yen selling could resume if the currency continues to appreciate. Also, the Japanese government is considering an additional 4.6 trillion yen spending plan to further stimulate the economy. Sentiment among large Japanese manufacturers has improved in September but is forecast to decline in December, according to the BOJ’s Tankan survey. This has increased expectations that the BOJ could decide on additional easing measures at its policy meeting this Tuesday. A dip toward 116 cents in the near term should not be ruled out.
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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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