Dubai Gold & Commodities Exchange Weekly Market Views

Provided by CPM Group, Vol. 2, No. 14, 4 April 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

Prices for crude oil, gold, and silver gained last week as expectations of higher prices based on positive fundamentals drew increased buying interest from investors. This week prices may head lower. Although fundamentals for these commodities are supportive of prices overall, they may not be enough to push prices much higher, at least this week. Investor price targets may be hit and profit-taking could easily push crude oil, gold, and silver prices to lows seen just a couple of weeks ago. If prices cannot forcefully break above technical resistance levels, selling also may be sparked. While demand for crude oil is improving it may not provide a strong upward price signal over the next few weeks. This may keep a lid on prices in the near term. Gold and silver meanwhile continue to benefit from strong investor interest. Relatively low gold and silver prices over the last two weeks, prior to the run up in prices over the past few trading sessions, drew increased buying interest in gold and silver investment vehicles. A weakening U.S. dollar trend aided the increase in commodities prices, but this week the U.S. dollar may strengthen and help cap price gains.

The U.S. dollar was volatile last week, trending lower overall. This week the dollar is forecast to strengthen against most major currencies. Economic recovery in the United States has been occurring at a better pace compared to many other advanced nations. Macroeconomic data released over the past several weeks has been signaling slow but steady growth in the United States. Consumer confidence levels have improved from the low levels of last year. There have been increased fund flows from Japan and Europe into the United States in search for higher yields. That said, the current recovery in the United States is at a nascent stage. Longer term sustainability of growth continues to be a concern. The U.S. government has a massive fiscal deficit. Unemployment in the United States continues to be at a high level while consumer spending remains weak. These factors are likely to minimize the upside potential for the dollar. The economic recovery in the United States meanwhile has been much slower than in several emerging market economies notably India and China.

DGCX Prices & Daily Volumes

Market
(as at April 1, 2010)

Current Week close

% Change

Change

Weekly High

Weekly Low

Gold ($/ounce)

$1126.10

1.85%

▲

1128.80

1102.90

Silver ($/ounce)

$17.895

5.67%

▲

17.995

17.100

Euro ($/Euro)

$1.358

1.30%

▲

1.359

1.340

GBP ($/GBP)

$1.528

2.65%

▲

1.529

1.491

INR ($/100 INR)

$2.228

0.62%

▲

2.230

2.208

JPY ($/100 Yen)

$1.066

-1.41%

▼

1.084

1.064

WTI ($/b)

$84.87

6.09%

▲

85.08

80.36

ADV (5,102)

Economic Indicators

Indicator	Change	Value	Change	% Change
CRB Index	▲	275.87	8.55	3.2%
U.S. Dollar Index	▼	80.75	-0.84	-1.0%
T-Bills	▲	0.15%	0.02%	0.0%
DJIA	▲	10,927	76.71	0.7%
FTSE Global All-Cap	▲	202.66	1.78	0.9%

Source: Bloomberg Data

COMMODITIES

Crude Oil

Crude oil prices approached $85 toward the end of last week as the U.S. dollar depreciated and physical demand trended higher. Petroleum prices are receiving support from a bullish gasoline market in which investors shrugged off last week’s inventory build in the United States. Rising gasoline stocks were caused in part by an increase in imports, while higher refinery runs did not inhibit the 2.93 million barrel build in crude oil inventories. Profit-taking could exert downward pressure on prices this week, although bullish expectations may keep oil trading above $81. Investors are focused on macroeconomic improvements and the outlook for a tighter market balance. However, a linear move higher does not appear likely at present. Inventories across the oil and product markets are high on a historical basis. In addition, OPEC is operating significantly under production capacity and the demand rebound remains fragile in certain parts of the global economy.

Gold

Gold prices may test support levels this week. A price decline below $1,100 could push prices toward $1,080. Investment demand picked up over the past two weeks as relatively low gold prices compared to early March drew increased buying interest. Combined exchange traded fund gold holdings were 56.82 million ounces as of 31 March, up 440,766 ounces from 56.38 million ounces on 22 March. Prices fell below $1,100 on 22 March, touched an intraday low of $1,084.80 on 24 March and headed toward $1,130 by the end of last week. This week profit-taking could set in as short-term investors reach their price targets. If gold prices are unable to move much higher it could also spur increased selling. A weakening U.S. dollar helped support prices last week, but this trend may reverse this week. Results from the European Central Bank’s and the Bank of England’s monetary policy meetings this week could provide support for the dollar.

Silver

Silver prices are forecast to break above $18.00 this week, with a possibility of moving toward $18.25. On the downside silver prices remain supported at $16.50. A dip toward $16.50 may be taken as a buying opportunity by many investors, which could reverse any price declines. There has been no fresh fundamental news affecting silver’s supply and demand balance. Investors continue to hold large amounts of silver at current prices. Combined ETF silver holdings were 470.2 million ounces as of 1 April, unchanged from the previous week. Fabricators have been reportedly stepping up their silver purchases in order to meet future consumer demands. Consumer spending on several silver-bearing products has been picking up since late last year. Commodity funds and other institutional investors have continued to hold large net long positions in the New York market. This suggests that they anticipate silver prices to rise further in the short to medium term. Premia on one-ounce silver bullion coins remains at relatively high levels, indicating some tightness in the physical silver market.

CURRENCIES

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

The euro may head toward $1.33 this week. The euro managed to recover last week and moved above $1.35 as concerns eased over Greece’s finances and weaker than expected economic data for the United States was released. Economic data in the eurozone meanwhile was better than expected last week. The recent confidence in the eurozone may be momentary, however, since Greece and several other nations in Europe are still facing fiscal problems. Several Greek banks are expected to be downgraded due to financial weakness. Yields have been rising for U.S. dollar denominated fixed income investments and may attract increased fund flows. This European Central Bank’s monetary policy meeting may result in removing support from the euro this week.

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

The Indian rupee could head toward 219 cents this week. A wave of profit-taking and technically driven selling by shorter term investors could drag the rupee lower. This may only be for a brief time, however. Expectations of strong economic growth in India coupled with sustained capital inflows of foreign funds remain supportive of the rupee. On Thursday 1 April the rupee settled at 222.7 cents, which was the highest settlement price so far this year. Last week foreign institutional investors bought $505.6 million in Indian stocks, up from $418.9 million in the week prior. The Indian benchmark stock index, Sensex, rose 116.8% as of 1 April after bottoming at 8,160 points on 9 March 2009. A large part of this increase has been driven by strong capital inflows from foreign investors.

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

The pound could move between $1.48 and $1.53 this week. Last week the pound rose 2.3% against the U.S. dollar, which was largely driven by improvements in the United Kingdom’s manufacturing sector. The United Kingdom’s Purchasing Managers Index rose to 57.2 points in March, up from 56.5 points in February. The manufacturing sector accounts for approximately 12% of the British economy. Despite a glimpse of recovery in some sectors, Britain’s economy largely remains in a distressed state. Britain’s fiscal deficit remains at a high level. Consumer spending and exports remain weak. All of this is likely to weigh on the pound and minimize its upside potential. The Bank of England has kept the interest rate at 0.5% since March of 2009, and is expected to be unchanged at this week’s monetary policy meeting.

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

The yen may move below 106 cents this week. Risk appetite has been rising over the past few weeks as funds are moving into overseas markets. Higher yielding fixed income investments in Europe and the United States are enticing investors to reduce their low yielding yen denominated assets. Industrial production in Japan declined in February along with household expenditures. The lack of sustainable economic growth in Japan, and seemingly and increasingly stable higher returns in overseas markets is pressuring investors to look abroad and reduce their safe haven investments in Japan. There continues to be an expectation that the Bank of Japan may add further stimulus measures this year, which would further help reduce the value of the yen.

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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Dubai Gold & Commodities Exchange Weekly Market Views - April 4, 2010