Dubai Gold & Commodities Exchange Weekly Market Views - Mar 14, 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).

 

DGCX Prices & Daily Volumes

WTI oil prices held firm last week, settling closer to $81 on Friday 12 March. Prices could move sideways with a slight downward bias this week. The WTI – Dubai spread has edged higher recently as both physical and investment fundamentals in these two markets diverged. WTI traded at a $3.78 average daily premium over Dubai from 1 March though 12 March compared to $2.85 in February. WTI oil, the North American light, sweet benchmark, has been buoyed by strengthening investment demand and a modest tightening in the supply – demand balance. Notably, reformulated gasoline prices in the United States have rallied as market participants prematurely priced-in a strong demand rebound during the summer driving season. Meanwhile, the bounce higher for Dubai prices, the light, sour Persian Gulf benchmark, has been less pronounced as there are concerns about Asia’s ability to absorb rising sour crude oil shipments. OPEC is expected to keep quotas unchanged during its 17 March meeting, although noncompliance with these quotas is likewise expected to remain unchanged.

Silver prices are expected to move sideways to slightly higher this week. Prices could rise as high as $18.00, a level not seen since 21 January. Jewelry demand for silver in India and the Middle East has tapered off slightly over the last couple of months due to relatively higher prices. Secondary recovery of silver from Indian scrap, on the other hand, remains firm. Recent estimates from India indicate that silver recovery from scrap almost doubled last year from 2008 levels. High silver prices have encouraged many individuals in India to sell their old jewelry and silverware to scrap refiners. Industrial demand for silver has been holding up well on improvements in the global economic conditions. Consumer spending on several silver-bearing items such as flat panel televisions, batteries, and cell phones has been reviving. Investors have become more optimistic or perhaps less pessimistic about financial, economic, and political conditions. That said, there still is a fair amount of investor concern regarding the pace and strength of the current recovery. Combined ETF silver holding were 469.2 million ounces at the end of last week, down from 472.9 million ounces on 5 March.

This week the Indian rupee could hold around 218 cents — 219 cents per 100 rupee. There may be bouts of short-term selling or profit-taking, but they would be expected to be short-lived. Last week the rupee hovered around 219 cents. The rupee has strengthened against the U.S. dollar in recent weeks, reflecting ongoing inflows of foreign funds into domestic equity markets. Also, many corporations have been selling U.S. dollars in anticipation that the rupee might further appreciate against the dollar. Industrial production in India has been recovering over the last two months. If the recent economic recovery in India is sustained, the Reserve Bank of India could raise interest rates sooner rather than later. This may help tame high inflation in India.

The selling pressure on the pound is easing, but sterling is unlikely to move above $1.53 this week. Investor confidence in the pound remains low. Similar to other parts of Europe, high government debt levels and weak economic growth are weighing on the pound. The economy in the United Kingdom requires both fiscal tightening and stronger economic activity, both of which should not be expected in the near term. Adding further weight on the already weak pound are rising political stresses as parliament elections approach in the United Kingdom. Uncertainty over what stance the elected officials will take toward the economy and the government debt situation may help keep the pound weak.

The yen may trade slightly lower this week, with support around 108 cents. Year-to-date demand in Japan for the yen has been strong as the economy lifts itself out of the recession. With economic activity gaining momentum, the Japanese government is expected to lift its economic outlook. The Japanese equity market also has performed well thus far in 2010. A weaker yen is needed to boost exports and reduce deflationary pressures, however. The cyclical turn could be derailed by a persistently strong currency. Meanwhile, the yen recently strengthened as money flowed into defensive currencies when European fiscal concerns surfaced. This trend could push and pull at the value of the yen over the short term. Domestic economic conditions, which favor a weaker yen, could provide a more enduring downward bias.

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.