Dubai Gold & Commodities Exchange Weekly Market Views - May 16, 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).

 

WTI oil prices may post a modest increase this week after falling below $72 at the end of last week. The upside for prices will remain limited over the near-term due to the rise in crude oil inventories and weak market sentiment. U.S. crude oil stocks stood at 362.5 million barrels as of 7 May, up from 354.0 million barrels on 9 April, according to the Department of Energy. The oil market is not currently pricing in the ongoing recovery in North American demand. Inventories held at the delivery hub in Cushing, Oklahoma are at record highs, which is weighing on prices. The concentrated stock buildup has caused WTI crude to trade at a discount to Brent crude. During the ten-day period between 3 May and 14 May, WTI traded at a daily average discount of over $3, compared to an average discount of roughly $1.25 during the preceding ten trading sessions. Spreads between sweet and sour crude streams also are narrowing. These trends may continue in the light, sweet crude oil markets.

Silver prices may decline toward $17.50 this week on profit-taking, if they are not able to break above $20. A move below support at $17.50 could push prices toward $16.50. The rapid increase in prices over the past few trading sessions could result in market participants taking profits. There is healthy demand from both investors and fabricators, which should provide support to silver. Prices are benefitting from the metal’s safe haven attributes and rising industrial demand. Investors may use any decline in prices as a buying opportunity. There is a possibility that strong investor interest prevents prices from declining below $18.75 cents. If this is the case silver could trade above $18.75 this week. Combined exchange traded fund holdings stood at 470.4 million ounces on 13 May, up from 464.4 million ounces at the end of last week. Commodity funds and institutional investors meanwhile continue to hold large net long positions.

The rupee is likely to hold above 220 cents per 100 rupee and could try to move back above 222 cents later in the week. After having declined toward 218 cents in early May the rupee recovered last week, nearing 223 cents before easing. Concerns over sovereign debt problems in Europe overflowed into emerging markets as investors increased their purchases of safe haven assets. Investor sentiment shifted last week, however, as fund flows leaving developing markets eased. While there should be reason for concern, given financial problems in Europe, economic activity is expected to remain robust in India. The Reserve Bank of India forecasts the country to expand at least 8.0% this fiscal year, which begins in April. Concerns over inflation meanwhile have eased slightly as it slowed to 9.6% in April from 9.9% in March.

The pound may trade between $1.44 and $1.50 this week, although may be more inclined to test support levels. Concerns over euro zone sovereign debt issues have been influencing the pound. While sovereign debt problems may not be as severe in the United Kingdom as they are in several euro zone member nations, they are enough to weigh on the pound. This coupled with still weak economic conditions and no clear fiscal reforms proposed yet may continue to keep the pound below $1.50 in the near term. A stronger pound could begin to emerge if there are signs that the new coalition government is able to pass fiscal policy reforms. The Bank of England expects to keep interest rates low, however, even if these reforms are passed to help keep the economy expanding.

The yen may continue to consolidate this week, trading between 107 and 110 cents. Volatility in the yen eased last week as it moved mostly between 107 and 109 cents, compared to the 105 to 113 cents range in the first week of May. Volatility in financial markets also eased last week, but it began to pick back up on Friday 14 May as most equity markets around the world saw their values decline. Recent concerns over sovereign debt problems in Europe do not seem likely to derail an economic recovery, but most investors remain anxious over the near-term prospects. The yen should be supported by such concerns as it is seen as a safe haven currency and economic activity is strengthening in Japan. Gross domestic product for the first quarter of this year, scheduled for release this week, is forecast to be 1.4%, up from 0.9% in the previous quarter.

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.