Dubai Gold & Commodities Exchange Weekly Market Views - March 21 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).

 

Global oil markets are in transition. Prices may have run ahead of current fundamentals but bullish expectations for the medium-term fundamental outlook could limit downside risks over the next few weeks. WTI oil is expected to form support above $80. The spring refinery maintenance period is in full swing, which is tightening the product markets. In addition, investors are rebuilding long positions in anticipation of the seasonal and cyclical demand improvements. As a result, oil prices could retest $82 this week. We expect prices to gradually move toward $90 by the second half of 2010. While oil could trade higher on expectations of a stronger economy, the supply and demand balance presents a more bearish tone. The demand recovery in developed economies has been slow. Meanwhile, supplies are increasing as production ramps up and inventories previously held in floating storage come back onto the market. Meanwhile, OPEC left quotas unchanged at its 15 March meeting as expected. With oil prices above $80, OPEC members have little incentive to remove barrels from the market.

Silver prices could possibly test $16.75 before moving slightly higher later this week. Prices have held above $16.80 over the past two weeks and $16.95 last week, which may be near-term floors. While a wave of short selling could push prices lower, most likely toward $16.50 or even $16.25, it may be more likely that investors and speculators will re-enter as buyers around $17.00. Many investors and bullion traders continue to hold large net long positions in anticipation of another upward move in silver prices. Macroeconomic data released in recent weeks continues to indicate a healthy recovery is underway, suggesting stronger fabrication demand for silver and other metals. Investment demand for silver remains firm. There have been no additions or liquidations in the ETF silver holdings in the past week. Combined ETF silver holding stood at 470.3 million ounces on 19 March, unchanged from the prior week.

The Indian rupee is forecast to strengthen this week, possibly moving toward 221 cents per 100 rupee. A wave of profit-taking and technically based selling by shorter term investors could drag the rupee slightly lower, but overall the trend is expected to be upward. There has been an ongoing inflow of foreign funds into domestic equity markets. This has been one of the major drivers in pushing the rupee higher. Last week foreign institutional investors bought $661.2 million in Indian equity, bringing the total amount invested so far in March to $2.6 billion. Inflation in India continues to be a major concern: The annualized rate of inflation in February rose to 9.9% from 8.6% in January. On Friday, 19 March the Reserve Bank of India raised interest rates to control the rising inflation. The move may bolster the rupee, both because it demonstrates resolve on the part of the RBI and because it highlights the strength in domestic economic growth trends.

The British pound may move between $1.50 and $1.54 this week, with a bias on the lower end of the range. The pound rose toward $1.54 in the middle of the week, but gave up most of it gains as the week progressed. The uptick in the pound largely was supported by better than expected unemployment data in the United Kingdom. The unemployment rate in the United Kingdom stood at 7.8% in February, down slightly from 7.9% in January. Overall economic conditions in the United Kingdom remain dismal. There have been fears about a double–dip recession in Britain. Also, there have been ongoing concerns and uncertainties regarding the ability of the government to tackle the current economic crisis. All of this is expected to keep downward pressure on the pound.

The yen may head lower this week, possibly moving toward 109 cents. At its monetary policy meeting last week the Bank of Japan (BOJ) decided to increase its three-month lending facility to banks by an additional $111 billion, pushing the total to $222 billion. This credit facility may be offset by the BOJ’s ending of other liquidity programs, however. It had been widely expected that the BOJ would take action to spur economic growth and fight deflationary pressures. The announcement of the increased lending facility following the monetary policy meeting did not influence the yen as forcefully as might have been expected. That said, the yen may begin to feel the effects of increased liquidity in the coming weeks.

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.