Dubai Gold & Commodities Exchange Weekly Market Views

Provided by CPM Group, Vol. 2, No. 2, 10 Jan 2010

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).

Commodities Overview

Currencies Overview

Commodities prices are expected to show strength in the first few months of this year. The strength will not be one-way, however. Periods of profit taking should be expected at times. This week petroleum prices may back off, following strong increases in recent weeks. Gold and silver prices may show continued strength this week, in contrast, as investors continue to buy these metals in expectation of higher prices over the next few months. Economic conditions continue to drive much of investor interest in commodities, including other, industrial metals. With increasing indications that the U.S. economy is joining other geographical markets in moving toward recovery and revival, investors are buying a range of commodities, expecting upward pressure on prices. Industrial demand is showing signs of increasing, meanwhile, adding to the upward pressure. In many markets the supply side remains constrained by recent economic and financial stringencies. This is adding to the upward strength in prices in and of itself, but it also is helping stimulate investment demand. Prices should not be expected to rise without period bouts of profit-taking, but at present there is a great deal of upward momentum in commodities prices.

The dollar still seems most likely to rise. The upward momentum remains in place, and has shown signs of gaining strength as investors focus on potentially stronger U.S. economic growth and equity markets than may be seen in Europe, England, and Japan this year. The dollar was hit last Friday by weaker employment figures than the market had expected, but soon recovered some of its composure as the market re-focused on the fact that the U.S. longer term employment trends are moving from disastrous conditions in late 2008 and the first few months of 2009 toward turning positive. Also, many investors are aware that employment trends lag overall economic condition. Thus, they understand that employment statistics should not be expected to turn positive until a recovery is well in place. Insofar as the U.S. employment situation is stabilizing after earlier nightmare conditions, it suggests to investors that the U.S. economy indeed is likely to see positive growth of 1.5% - 2.5% for the full year 2010. The dollar’s rise certainly will not be universal against all currencies. Nor will it be one way. Dollar exchange rates should be expected to be volatile through the first half of this year.

DGCX Prices & Daily Volumes

Market
(as at Jan 8, 2010)

Current Week close

% Change

Change

Weekly High

Weekly Low

Gold ($/ounce)

$ 1136.70

3.68%

▲

1139.40

1101.50

Silver ($/ounce)

$18.500

9.08%

▲

18.500

17.165

Euro ($/Euro)

$1.441

0.59%

▲

1.448

1.427

GBP ($/GBP)

$1.601

-0.93%

▼

1.623

1.589

INR ($/100 INR)

$2.190

2.32%

▲

2.191

2.147

JPY ($/100 Yen)

$1.081

0.64%

▲

1.096

1.071

WTI ($/b)

$82.75

4.27%

▲

83.50

79.95

ADV (6,404)

Economic Indicators

Indicator	Change	Value	Change	% Change
CRB Index	▲	290.77	7.42	2.6%
U.S. Dollar Index	▼	77.46	-0.46	0.6%
T-Bills	▲	0.05%	0.01%	0.0%
DJIA	▲	10.618	69.68	0.7%
FTSE Global All-Cap	▲	340.70	8.71	2.6%

Source: Bloomberg Data

COMMODITIES

Crude Oil

WTI oil prices may be pushed slightly lower this week, although prices are expected to stay above $80. Investors have been building fresh long positions at healthy rates since the end of 2009. This group of market participants could continue to keep prices elevated. Unseasonably cold temperatures in North America, and worldwide, and by association rising demand for oil products, also are adding support to prices. However, a slightly more bearish tone is likely to eventually present itself over the next couple of weeks. U.S. crude oil inventories rose for the first time since the beginning of December, according to EIA data from 1 January. Moreover, volatility in other financial markets could spill over into the petroleum markets, which continue to be reason for caution. Surplus conditions and investor long liquidation could send oil prices back toward $75 by the end of this month in this scenario.

Gold

Gold prices are expected to head higher this week. Prices may forcefully break above $1,150 and make a run toward $1,200. Prices tested $1,140 last week as investors showed renewed interest in gold and reduced price shock at prices around $1,100. Investors have come back in force this new year and are increasing the portion of their portfolios they allocate to gold. Demand for coins and small investor-sized bars has been strong. Investors have been choosing to purchase physical gold recently over buying exposure to rising gold prices through exchange traded funds (ETFs). Gold deliveries via the Comex have surged over the past several months. As of 7 January combined ETF gold holdings were 56.36 million ounces, down slightly from 56.7 million ounces at the beginning of the year, but not far from the level of holdings at the beginning of November 2009. Investors continue to buy on price dips. Follow-through buying has increased as prices break above key resistance levels. Demand for gold in India is rising in light of relatively lower gold prices since late November. An appreciating rupee is helping to spark buying interest.

Silver

Silver prices most likely will move between $17.50 and $18.75 this week, with a bias on the upside. A break above $19.00 cannot be ruled out, however, given investor interest. Bargain hunters have been taking advantage of declines in prices to purchase on dips. Demand from both fabricators and investors continue to be firm. Industrial users of silver are buying silver in anticipation that their silver requirements for use in several sectors such as electronics, batteries, and solar panels will pick-up sharply as the global economy makes its way out of the recession. Investors, on the other hand, continue to buy based on ongoing economic, political, and financial concerns. Some investors also have been buying as a hedge against inflation or to diversify their portfolios. Investors purchased around 172.0 million ounces of silver on a net basis in 2009. ETF investors added 151.0 million ounces to their holdings. Combined ETF silver holdings stood at 464.9 million ounces as of 7 January, virtually unchanged from the end of December 2009.

CURRENCIES

Euro / Dollar DEUR (US $ quoted in cents per Euro)

While there are some signs that the euro could strengthen a bit next week, this may not happen. The euro could move to test $1.45 early this week, but it may be more likely to move below $1.43 on its way toward $1.42 against the dollar. The dollar was hit Friday by weaker employment figures than the market had expected, but the weakness may be short-lived. The euro could strengthen a bit more this week, but it seems more likely that the euro will move lower against the dollar as investors look to allocate more cash to U.S. investments than continental European ones, on the expectation that the U.S. economy and equity markets may outpace Europe this year.

Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees)

The Indian rupee is expected to strengthen this week, possibly testing 219 cents — 220 cents per 100 rupee. Last week the rupee rose 2.1%, settling at 218.6 cents on 8 January. The rupee appreciated against the U.S. dollar in the new year partly because of an upswing in the domestic equity markets. Foreign institutional investors purchased $791.6 million in Indian equity last week. Part of the strength in the rupee also reflected firm U.S. dollar demand from importers. The Indian economy has been growing at a rapid pace over the past several years and this trend is expected to continue in 2010. This has resulted in many investors pouring money into India and other emerging market economies to get higher yields in their investments.

Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound)

The pound is expected to continue to trade in a narrow range this week, moving on either side of $1.60. It may head toward $1.615 first. That could be a ceiling for the pound this week, however. Concerns over weak economic conditions in the United Kingdom continue to weigh on the pound. The Bank of England left interest rates unchanged last week and is expected to finish its 200 billion pound asset purchase program by February. The pound may move in a sideways fashion until then, but continued weak economic data for the United Kingdom could exert downward pressure. A rising budget deficit is increasing investor concerns over fixed income investments. Yields on United Kingdom bonds have been rising recently.

Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen)

The Japanese yen could weaken this week, moving toward 103 cents — 104 cents. The yen was strong against the U.S. dollar early last week, but a series of government moves led it to shed most of its gains as the week progressed. The Japanese finance minister resigned last week after around four months on the job. His replacement immediately upset the foreign exchange market by commenting that he thought the yen should fall against some of the major currencies. The markets moved to oblige him. His view was that a weaker yen was needed to boost Japanese exports, which would be beneficial for the domestic economy. Overall, the Japanese economy remains fragile compared to its Asian counterparts.

Further Information
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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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Dubai Gold & Commodities Exchange Weekly Market Views - 10 January 2010