Dubai Gold & Commodities Exchange Weekly Market Views, Jul 11, 2010

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).

This week WTI oil could trade on either side of $75 as unstable investor interest affects prices. The large inventory draw in the United States exerted upward pressure on oil prices toward the end of last week. U.S. inventories declined 1.4% week-on-week to stand at 358.2 million barrels, according to 2 July EIA data. This was the largest weekly decline since September 2009. Meanwhile, implied oil demand in the United States rose by 3.4% to 15.5 million barrels per day. Further inventory declines and strengthening demand for oil products could prompt investors to rebuild their long positions and pull prices closer to $80. However, macroeconomic data remains the key driver behind oil prices. Over the next few trading sessions Chinese trade data and U.S. industrial production for June will be released. These indicators are expected to provide critical direction to the oil market.

Silver prices are expected to move between $17.60 and $18.60 this week. Any weakness in gold prices is likely to negatively influence the price of silver. Many market participants would consider it a buying opportunity if the price of silver were to decline to the lower end of the above stated range. In the event that prices settle below $17.60, there is a possibility that prices slip to $17.50. Silver prices typically weaken during this time of the year because of seasonal weakness in demand for the metal. Investors are likely to use any weakness in prices as a buying opportunity, however, given the positive medium to long term fabrication demand fundamentals of silver. This coupled with any short-term concerns regarding the prospects of the global economy also are likely to bode well for the price of silver, because of its safe haven quality. 

The rupee may trade between 212 cents and 215 cents per 100 rupees this week. The rupee traded vertically in the beginning of last week after inflation data reflected a rise to 10.2% in May from the previous month. Shortly thereafter the Reserve Bank of India (RBI) raised the rate by which it lends to commercial banks by 25 basis points to 5.5% on 2 July. The rupee rose on Friday, 9 July following gains in global equity markets. Investor sentiment toward risky assets and, by extension, emerging markets improved last week after the Eurozone exhibited financial strength when a major Eurosystem lending facility closed smoothly. This eased concerns over the global recovery a bit. Foreign fund inflows to India’s domestic markets rose by $1.6 billion as of 9 July from last week. If the rupee breaks above 215 cents, it may extend gains toward 216 cents momentarily.

The pound may edge slightly higher this week, possibly towards $1.53, before easing off later in the week. The pound consolidated around $1.52 early last week as mixed economic data prevented the pound from moving too forcefully in any one direction. There have been some increased positive views toward the pound in recent weeks, reflecting the new U.K. government’s plans for fiscal reform within the country. While that is an underlying view of the market, market sentiment has turned noncommittal. Weak net export figures then pushed prices slightly lower amid concerns of a subdued economic recovery later in the week. The increasing possibility of weaker growth in the United Kingdom may keep the pound trading below resistance at $1.53. The pound has been trending higher recently, however, and is below historic levels. This juxtaposed against economic concerns may push and pull at the currency to prevent it from breaking out of its current trading range of $1.50 - $1.53.

The yen may remain volatile this week, possible ranging between 112.5 and 115.0 cents. The yen rallied early last week to almost 115 cents on 5 July, before falling to around 113 cents on Friday. Demand for yen as a safe-haven currency declined as European debt concerns eased and world equity markets rose. There is speculation that the yen could head lower this week if the current ruling party suffers a bad result in Japan’s upper house election on Sunday. The yen also could suffer from signs of moderation in Japan’s economic growth. Japanese industrial production and machinery orders dropped in May. However, the country’s economy could be helped by new lending activities resulting from the Bank of Japan’s scheme to lend up to three trillion yen to commercial banks. Demand for yen from overseas investors, including the Chinese government and Chinese corporations, has helped keep the yen strong, while speculative follow-on buying by banks has added to this trend.