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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).
Gold prices may extend last week’s upward move this week, while oil and silver are appearing a bit top-heavy. Gold prices closed at $1,180 on Friday in New York. This is a critical level. A move above this could trigger buy orders, sending gold back to December’s record. Gold is being bought as a financial hedge against the gathering sovereign debt storm in Europe. Oil and silver meanwhile have reached the high levels markets have viewed as possible near-term tops. This could trigger profit-taking in both markets this week. In the event that gold prices make a move toward new highs, silver and oil might come along for the ride. All three metals would then be at risk of profit-taking. Other commodities also have been strong over the past week, and seem likely to remain strong in the medium term. Economic growth has been healthy in China, North America, India, and other regions. Even European growth has been stronger than had been anticipated. This could support commodities prices in the near term. Prices might soften later, in the second half of the year.
The dollar’s market bifurcation may continue this week. The dollar should be expected to show strength against major traded currencies, including the euro, pound, and yen. It should be expected to continue to weaken against the rupee, and currencies of both commodities exporting nations and emerging markets. The dollar will benefit from sovereign debt concerns roiling the European markets. These concerns are likely to continue to help stimulate funds flowing into the dollar and U.S. Treasuries this week, and in the medium term. There is some scope that the euro could rebound slightly, on the view that the concerns of a default by Greece are overdone. Also, some seemingly definitive moves to aid Greece could help the euro in the short run. Any such move would be expected to be limited in scope and duration, however. While markets assume European leaders will be able to avoid short-term chaos due to sovereign financial imbalances, the view that European governments had no tools to solve the longer term issues behind these imbalances does not instill investor confidence in the euro.
Market (as at April 30, 2010) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
||
| Gold ($/ounce) |
$1179.60 |
2.07% |
▲ |
|
|
||
Silver ($/ounce) |
$18.735 |
2.49% |
▲ |
|
|
||
Euro ($/Euro) |
$1.332 |
-0.47% |
▼ |
|
|
||
GBP ($/GBP) |
$1.528 |
-0.55% |
▼ |
|
|
||
INR ($/100 INR) |
$2.246 |
-0.43% |
▼ |
|
|
||
JPY ($/100 Yen) |
$1.065 |
0.19% |
▲ |
|
|
||
WTI ($/b) |
$86.15 |
1.21% |
▲ |
|
|
ADV (6,028)
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
▲ |
297.13 |
7.00 |
2.4% |
U.S. Dollar Index |
▲ |
81.89 |
0.54 |
0.7% |
T-Bills |
- |
0.16% |
0.00% |
0.0% |
DJIA |
▼ |
11,009 |
-195.67 |
-1.7% |
FTSE Global All-Cap |
▼ |
202.61 |
-4.06 |
-2.0% |
Source: Bloomberg Data
WTI oil prices may hold around current levels, following last week’s rally. Data showing continued firm economic expansion in the United States late last week helped push oil prices firmly above $85. Expectations are rising for a strong period of seasonal demand in the Northern Hemisphere beginning over the next couple of months despite current fiscal problems in several euro zone member countries. Meanwhile delivery problems in the Gulf of Mexico due to the oil spill there may begin to emerge soon. High oil inventories may cap further prices gains, but support should come from rising demand and concerns over possible supply constraints. While potential for profit-taking has increased, any decline in prices may be limited and oil prices could quickly recover.
Gold prices may make a run toward $1,230 this week. Prices breached $1,180 late last week, as investment demand surged and technical indicators spurred increased buying interest. If prices break firmly above $1,180 early this week the move could trigger buy orders, sending prices sharply higher for a brief time. Last December’s record highs would be the initial objective. Rising concerns over Grecian financial problems in addition to recent focus on Portugal’s and Spain’s sovereign finances have helped spark increased demand for gold. Investment demand had been rising modestly over the past several weeks, but picked up sharply last week. Combined exchange traded fund gold holdings totaled a record 58.1 million ounces on 29 April, up 667,330 ounces from 57.43 million ounces at the end of the previous week. Gold prices made strong gains late last week even as some concerns over euro zone finances were allayed amid government officials and the International Monetary Fund trying to assure investor confidence.
Silver prices could test $19.00 early this week. Support for prices is positioned at $17.50. The roll in the New York market from the May silver contract into forward months is mostly complete, which could allow for prices to come off on profit-taking. Industrial demand for silver has been improving as consumer spending on several silver-bearing products has been picking up over the past several months. Jewelry demand for silver and demand for smaller denomination coins has been holding up fairly well in India, Middle East, and some of the other Asian nations. Jewelry manufacturers and bullion dealers in these regions reportedly have been building silver inventories in the face of this demand. Combined ETF silver holdings were 458.9 million ounces on 30 April, unchanged from the previous week. Longer term investors have been holding on to their silver purchases Silver often is viewed as being a hybrid between a financial and an industrial asset, which is likely to benefit as the global economy recovers.
The euro may break below $1.32 this week Last week the euro fell toward $1.31 as three euro zone member countries’ credit ratings were downgraded and concerns over sovereign finances across Europe continued to escalate. By Friday, however, the euro had recovered, trading around $1.33. Confidence in the euro zone members’ ability to effectively address fiscal problems has been shaky over the past several weeks. Both Portugal and Spain had their credit ratings downgraded last week, in addition to Greece. Portugal’s and Spain’s budget deficits have been a rising concern along with persistent weak economic conditions in these countries. The euro rose late last week as euro zone members and the International Monetary Fund voiced their support for Greece and expectations of a financial package materializing soon boosted investor confidence.
The Indian rupee is likely to hold above 224 cents per 100 rupee this week. A wave of profit-taking and/or technically driven selling could push the rupee lower, but it may be for only a brief time. The rupee has been strengthening against the U.S. dollar over the past several months, a trend which should be expected to continue in the medium term. From the beginning of the year through 30 April the rupee has appreciated 9.0% against the U.S. dollar. A large part of the strength in the Indian rupee has been driven by robust capital inflows from international markets. Foreign institutional investors purchased $2.1 billion of Indian equity in April. The Indian meteorologist department meanwhile forecast a normal monsoon this year, which typically runs between June and September. This could be beneficial for agricultural products, which account for 15% — 20% of Indian gross domestic product.
The pound may head toward $1.50 early this week before recovering. The pound fell in the middle of last week as concerns over fiscal problems in the euro zone overflowed into the United Kingdom. The United Kingdom also is facing high budget deficits and weak economic conditions. While most likely misplaced, market concerns nonetheless are rising over a possible sovereign debt rating downgrade for the United Kingdom. Any such downgrade would be expected to occur beyond this week, however, since parliamentary elections are scheduled for 6 May. The pound should be expected to take direction from pre-election polls, with the closeness in the election races weighing on the pound. Support for the pound could come from fund flows from the euro.
The yen is expected to head toward 104 cents —105 cents this week. There are no major macroeconomic data scheduled to be released this week. Fundamentally, the yen remains poised to weaken against the U.S. dollar. Most of the positive growth in Japan in the last quarter has been a result of improvement in exports. Other sectors in Japan meanwhile have been slow in their recovery compared to many other industrialized nations. Deflation continues to have negative impact on the Japanese economy. High unemployment and weak consumer spending have been adding to it. The Bank of Japan has committed to more than $212 billion to bolster economic recovery in the domestic markets. The Bank of Japan continues to hold interest rates at 0.1%.
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