Dubai Gold & Commodities Exchange Weekly Market Views - April 11, 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).

 

Optimism over demand prospects in the near-term could keep oil prices above $83 over the next few trading sessions. Crude oil prices neared $87 last week, ending the week at $84.87. Investors continue to buy crude oil on hopes for stronger transport fuel demand and a tighter market balance. Gasoline demand is slated to improve during the summer months in the Northern Hemisphere. The actual strength of this seasonal increase in demand is questionable, however, given high unemployment levels in developed economies. Expectations for a recovery in freight activity also are prompting investor bullishness. Oversupply conditions meanwhile remain a notable downside risk to prices. At this point in the business cycle, demand is playing catch up with supplies as both OPEC and Russia are ramping up output to take advantage of high prices. U.S. oil rigs in operation stood at 505 as of 9 April, up more 20% from the beginning of this year, according to the Baker Hughes rig count.

Silver prices could be very volatile this week. Prices could rise in tandem with gold and oil, especially if the dollar weakens further next week. That said, there is a tremendous amount of upside pressure on silver at present. It is possible that silver prices could drop as low as $18.00 or $17.50 on shorter term profit-taking, following last week’s strong upward move. That may not happen, if the market is overwhelmed by fresh bullishness. Some technical indicators are pointing to $19.50 as a possible target for prices yet this month. While prices may not race to such levels next week, many investors and traders will be watching for signs that prices will continue to defy gravity. In India and the Middle East consumers have increased their silver purchases ahead of the marriage and festival season. In recent weeks there have been investor selling of silver to book profits, but the volumes have not had a negative impact on silver prices. Combined ETF silver holdings were 466.9 million ounces on 9 April, a decline of 0.3% from 468.3 million ounces on 2 April.

The appreciation of the Indian rupee against the U.S. dollar may pause this week; the rupee may drift lower, possibly toward 219 cents — 220 cents. At the end of last week the rupee closed at 225.8 cents. Many investors are likely to book profits at current levels, which could push the rupee lower. Also, there have been concerns that strengthening of the rupee could be detrimental to exports from India, making it less competitive against other Asian nations. The strength in the rupee over the past several weeks has largely been driven by strong capital inflows from foreign investors. The growth in the Indian economy has been robust and is expected to stay firm in the near future. Foreign institutional investors purchased 567.7 million in Indian equity last week.

The pound is expected to rise further, toward $1.55, this week. The pound has risen against the U.S. dollar over the past two weeks on positive macroeconomic data from the United Kingdom. According to preliminary estimates by the National Institute of Economic and Social Research, Britain’s gross domestic product (GDP) expanded 0.4% in the first quarter of this year. A large part of the expansion in Britain’s GDP could be attributed to improvements in the manufacturing sector. United Kingdom’s huge budget deficit continues to be a major concern. The election outcome will largely dictate how the fiscal issues will be tackled. Elections in the United Kingdom have been scheduled for 6 May. The Bank of England kept its interest rates at 0.5% last week and could provide further accommodative measures if needed, but it would be unlikely to undertake such actions just before the election.

The yen could hold around 106 cents — 107 cents this week, similar to last week. There has been no major fundamental news affecting the yen. Exports from Japan have improved over the past several weeks, which has been supportive of the yen. Overall, Japan’s domestic economy remains fragile, with deflationary pressures remaining. High unemployment and weak consumer spending continue to threaten the Japanese recovery. Consumers have withheld their purchases in anticipation that prices could decline further.  The Bank of Japan kept interest rates unchanged in its recent monetary policy meeting and is expected to provide further quantitative easing in the months ahead. The ratio of Japanese government debt to gross domestic product remains at high levels.

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.