Provided by CPM Group, Vol. I, No. 24, 6 Dec2009
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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 |
The precious metals and energy markets shrugged off Dubai World’s debt issues as investors perceived the brief dips as buying opportunities. Gold prices reached record highs again last week as economic anxieties persist. Prices came off sharply on Friday 4 December amid a strong U.S. employment report, short-term liquidation, technical selling, and a strengthening U.S. dollar. Gold may continue to come under downward pressure this week as shorter term focused market participants book profits. Interest in gold by longer term investors is expected to remain strong, with the global economy yet to find firm footing. As a result, any spikes lower are expected to be perceived as buying opportunities. Prices will find some resistance at $1,120 - $1,130. Likewise for silver, short-term speculators could liquidate their long positions at current price levels but safe haven buying is expected to endure this wave of profit-taking. In the crude oil market, meanwhile, the impact of prevailing weak fundamentals has been minimal in the face of fairly robust investment demand. WTI oil could continue to trade in a narrow range, above $75, as eager investors seek exposure to the market. Bearish fundamentals remain on the horizon. |
Unexpectedly bullish employment indicators in the United States boosted the value of the U.S. dollar relative to other major currencies on Friday 4 December. Non-farm payrolls fell by 11,000 in November, which surprised many market participants who were expecting a decline of 125,000. Investor confidence in the dollar re-emerged with this sign of improvement in the U.S. economy. Last week the euro fell 1.2% against the dollar while the yen depreciated 4.6%. The U.S. dollar index may strengthen moderately this week. Both more intense signs of an emerging economic recovery and investor skepticism about the economy could be beneficial for the dollar. If the signs of recovery grow more intense, the Fed may increase interest rates sooner than expected, effectively pushing the dollar higher. If this occurs over the medium term, the carry-trade also could weaken sooner than expected. On the flipside, renewed pessimistic sentiment could continue to compel investors to hold dollars as a hedge against economic risks. Even so, the dollar may continue to trade in a volatile manner and remains exposed to downside risks over the coming weeks.
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DGCX Prices & Daily Volumes |
Market
(as at Dec 4, 2009) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
Gold ($/ounce) |
$1,159.1 |
-2.97% |
▼ |
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Silver ($/ounce) |
$18.39 |
-1.39% |
▼ |
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Euro ($/Euro) |
$1.483 |
-1.15% |
▼ |
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GBP ($/GBP) |
$1.644 |
-0.34% |
▼ |
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INR ($/100 INR) |
$2.150 |
-0.52% |
▼ |
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JPY ($/100 Yen) |
$1.106 |
-4.32% |
▼ |
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WTI ($/b) |
$75.470 |
-0.96% |
▼ |
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ADV (10,541) |
Economic Indicators
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
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0.3% |
U.S. Dollar Index |
▲ |
75.77 |
0.77 |
1.0% |
T-Bills
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▲ |
0.04% |
0.01% |
0.0% |
DJIA |
▲ |
10,389 |
78.98 |
0.8% |
FTSE Global All-Cap
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▼ |
326.08 |
-5.58 |
-1.7% |
Source: Bloomberg Data |
COMMODITIES |
Crude Oil |
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Investors continue to perceive any short-term declines in oil prices as buying opportunities, which is keeping prices in a relatively tight range. After Dubai World announced that it was looking to reschedule its debt payments on Friday 27 November, oil briefly traded below $73 as investor’s risk appetite briefly shifted. Prices then reverted back above $76. Prices continued to move in a narrow range last week, between $75 and $79. Robust investment demand as opposed to strengthening physical demand remains the key support for oil prices. Supply levels remain healthy while demand has yet to pick up substantially in most regions of the world. High inventory levels remain a medium-term concern. Crude oil and oil products stored on floating shipping tankers are estimated at 100 million barrels. Despite the fundamental risks on the horizon, oil prices may continue to be buoyed by eager investors. This week WTI oil has strong support above $75 and could test $78.
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Gold |
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Gold prices may be vulnerable to further declines this week. After having reached record highs again last week, prices came off sharply on Friday 4 December amid short-term liquidation, profit-taking, technical selling, and a strengthening U.S. dollar. Gold prices dropped around $40 that day soon after better than expected unemployment figures for the United States were released. A sharp correction should have been expected given the strong rally gold had made the week leading up to Friday and during November. Prices may fall further in the coming days, perhaps finding support at $1,120 - $1,130. A sharper drop could push gold to $1,020 or $1,040 without much difficulty. Any such drop would be expected to trigger heavy renewed buying, unless it were accompanied by major improvements in the political or financial environment, which does not seem likely in the next few weeks. While shorter term focused market participants may be pushing prices lower, longer term focused investors may be waiting to buy gold as soon as prices bottom out. Investor interest in gold remains strong. Combined ETF gold holdings reached a record 56.94 million ounces on 3 December. |
Silver |
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Silver prices could taper off slightly this week. There is a possibility of short-term liquidation by some market participants on profit-taking and technically driven selling. This could drag silver prices toward $18.00. Silver prices remain supported at $18.00, however. That said, if prices break below this level, then a quick move toward $17.50 — $17.75 cannot be ruled out. Most of the liquidation largely is expected to come from short-term speculators. Longer term investors may continue to be steadfast to their existing silver holdings and may also purchase more on expectations of higher silver prices in the near future. Investors around the world have been buying silver as a safe haven against all of the economic, financial, and political problems. Silver holdings in exchange traded funds (ETF) have been rising steadily and surpassing previous records week-over-week. Combined ETF silver holdings reached a new record of 463.4 million ounces at the end of last week, an increase of 2.0% or 8.9 million ounces from 454.5 million ounces on 27 November.
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CURRENCIES |
Euro / Dollar DEUR (US $ quoted in cents per Euro) |
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The euro may continue to slide this week, possibly moving toward $1.46 — $1.47. Last week the euro declined 1.2% against the U.S. dollar. The euro was firm early on in the week on perceptions that the European Central Bank (ECB) may pull back on some of the quantitative easing measures based on positive macroeconomic data. However, this was short-lived. On Friday 4 December the euro fell sharply against the U.S. dollar, settling at $1.48. The unemployment figures released in the United States showed a declining rate, suggesting, to some extent, that the U.S. economy has been stabilizing from the recession. The ECB left interest rates unchanged at 1.0%. |
Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) |
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This week the Indian rupee could move in a similar band as it did last week, with a bias on the upside. The rupee traded in a thin range last week, moving mostly between 214 cents and 216.5 cents. The rupee fell sharply early last week on concerns about the financial meltdown in Dubai. Many investors moved away from the rupee for a brief time to safe-haven currencies like the U.S. dollar and the yen. However, as the week progressed the rupee appreciated against the U.S. dollar. Macroeconomic fundamentals in India point toward strong economic growth. India’s gross domestic product grew 7.9% during the third quarter, much higher than market expectations of 6.3%. The Indian equity markets continued to surge, fueled largely by capital inflows from foreign institutional investors.
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Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) |
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The pound may begin to take some direction this week after having been range-bound for most of last week, between $1.65 and $1.67. Several economic data are scheduled to be released this week and a monetary policy meeting will be held on 10 December. Economic data for the United Kingdom this year have been poor, which weighed heavily on the pound earlier in the year. Despite the pound having recovered the United Kingdom seems to be a laggard economically among the developed nations. Continued poor economic conditions in the United Kingdom may spur an increase in the Bank of England’s asset purchase program, which would be expected to weigh on sterling. This week may result in the pound moving lower if economic results in the United Kingdom continue to be weak.
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Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) |
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The Japanese yen is likely to continue to weaken against the U.S. dollar and move toward 105 cents — 106 cents this week. The downward trend in the yen largely reflects a dollar bolstered by a better-than-expected November U.S. employment report, which has fueled equity markets and increased investor appetite for riskier and higher yielding investments. With signs of improvement in the U.S. economy the Fed may raise interest rates sooner than expected. The yen depreciated 4.6% against the dollar last week as the markets saw a dollar-based carry trade reversal begin to emerge. The Bank of Japan has considered loosening its monetary policy to control deflationary pressures and to boost the domestic economy. A weaker yen against the U.S. dollar may also help drive Japanese exports market.
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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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