Dubai Gold & Commodities Exchange Weekly Market Views

Provided by CPM Group, Vol. 2, No. 21, 23 May 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).

Commodities Overview

Currencies Overview

Commodities prices are likely to continue to be volatile, although perhaps not at the levels that were seen over past couple of weeks. Heightened concern over economic prospects, and volatile equity and currency markets have helped increase price activity in most commodities markets. Investor sentiment over near-term problems turned increasingly negative last week as prices for many commodities declined. Investors moved toward safe haven investments, but buying of gold and silver was not strong enough to support prices. That said, ongoing anxieties over financial markets, economic conditions, and the political environment should provide support for gold and silver. As prices for these metals find a base there could be a surge in buying from longer term investors. Short-term investors may return in force as prices begin to rise, accentuating price activity on the upside. It would not be surprising to see record highs for gold over the next six weeks or for silver to break above $20. Oil prices meanwhile are more likely to rise than fall. Investors may see current prices as a good buying opportunity with demand projected to rise over the next couple of months as seasonal patterns emerge more forcefully.

Wide trading bands should be expected for most currencies this week. Investors rushed to the U.S. dollar and yen last week amid increased financial market volatility and declining equity values. There was rising uncertainty over how European debt problems may affect a still fragile economic recovery being seen in most parts of the world. Confidence in the euro weakened early last week, but sentiment turned as the currency recovered from multi-year lows by week’s end. Political stresses in Europe are at high levels amid the recent financial package for heavily indebted nations, adding to volatility in the euro. Investor anxieties and uncertainty over how European financial problems will unfold in the near term may keep the euro and pound around current levels. The yen and U.S. dollar meanwhile should remain supported. Demand for U.S. 10-year Treasuries surged last week as yields fell to levels not seen since December 2009. Investor funds also have flowed out of emerging markets and into the dollar and yen. Economic growth in developing markets is expected to be strong, however, and fund flows could begin to shift once investor fears ease.

DGCX Prices & Daily Volumes

Market
(as at May 21, 2010)

Current Week close

% Change

Change

Weekly High

Weekly Low

Gold ($/ounce)

$1176.60

-4.67%

▼

1241.50

1171.00

Silver ($/ounce)

$17.590

-8.77%

▼

19.310

17.480

Euro ($/Euro)

$1.258

1.57%

▲

1.266

1.215

GBP ($/GBP)

$1.447

-0.51%

▼

1.451

1.431

INR ($/100 INR)

$2.129

-3.10%

▼

2.197

2.116

JPY ($/100 Yen)

$1.114

2.67%

▲

1.122

1.077

WTI ($/b)

$70.04

-2.19%

▼

75.69

69.00

ADV (7,421)

Economic Indicators

Indicator	Change	Value	Change	% Change
CRB Index	▼	251.42	-7.13	-2.8%
U.S. Dollar Index	▼	85.37	-0.72	-0.8%
T-Bills	▲	0.15%	0.01%	0.0%
DJIA	▼	10.193	-426.77	-4.0%
FTSE All World	▼	180.53	-9.37	-4.9%

Source: Bloomberg Data

COMMODITIES

Crude Oil

WTI oil prices have declined by over 17% since the end of April, with oil trading below $70 for most of last week. Investor selling intensified with the recent EIA data, which showed another build in stocks held at the Nymex delivery point in Cushing, Oklahoma. Refineries have lowered their utilization rates to work off some of their stocks and have therefore demanded less crude oil. The oil market had been vulnerable to downside risks for the past few months given the surplus conditions prevalent in the market. Supplies have been rising at a faster pace than the demand recovery. However, June is typically a seasonally strong month for prices as the driving season begins. With oil prices looking oversold at present, last week’s sell-off provides a good window for a short-term buying opportunity.

Gold

Gold may have scope for further declines this week, but prices are likely to hold above $1,160. Relatively low prices compared to the first half of May could attract increased buying interest. Gold fell sharply last week, following several weeks of an upward trend in prices. Profit-taking and technical selling weighed on prices. Gold had been supported at $1,230 early last week, but as this level was broken prices quickly fell toward $1,200 and then toward $1,180. Volatile financial market conditions have helped accentuate gold price movements. While some short-term investors may have reduced their long positions they may be waiting for prices to find a base before initiating fresh long positions. Longer term investors seem to be increasing their gold purchases. Combined exchange traded fund (ETF) gold holdings rose last week even as gold prices declined. Combined ETF gold holdings were a record 61.14 million ounces as of 20 May, up 459,780 ounces from the end of the previous week. Investor unease over financial and economic prospects should support firm demand for gold over the next several weeks.

Silver

Silver prices could weaken further from current levels before recovering. Market participants are likely to remain on the sidelines until they feel assured that the wave of heavy selling in financial markets and in silver last week has settled. Prices could decline toward $16.50 on the lack of buying interest. Concerns regarding the global economic recovery based on European sovereign debt problems and their possible negative impact on industrial demand for silver has been weighing on silver prices. The safe haven attributes of silver, however, should prevent prices from declining significantly. Combined exchange traded fund silver holdings stood at 477.9 million ounces on 20 May, up 1.9 million ounces over the previous week. Market participants are likely to see a further decline in prices as an opportunity to aggressively buy silver. This could potentially push silver prices as high as $19.50 over the next couple of weeks.

CURRENCIES

Euro / Dollar DEUR (US $ quoted in cents per Euro)

The euro should continue to move in a wide band early this week, although could begin to consolidate as the week progresses. Increased investor pessimism weighed on the euro early last week as the currency fell toward $1.21 before recovering by week’s end. Concerns over sovereign debt problems surged, prompting investors to seek yen and U.S. dollar denominated safe haven investments. Equity markets in Europe saw sharp declines and credit conditions began to tighten. By Friday, however, the euro had moved back above $1.25 amid bargain hunting and short-covering. The quick reversal in the euro was aided by market participants having to cover a large amount of short positions that had been built up over the previous weeks as the currency was trending lower.

Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees)

The rupee may stabilize above 211 cents per 100 rupee and could try to move above 214 cents as the week progresses. The rupee’s current lows may be viewed as a buying opportunity after posting its biggest weekly decline in nearly 14 years and a low not seen in 6 months. Investors moved toward safe haven assets in light of European sovereign debt concerns. As of 20 May foreign investor fund outflows amounted to $1.45 billion for the month to date. This assisted in driving the Sensex down 3.2% for the week. There has been increased speculation meanwhile that the Reserve Bank of India may intervene in the currency markets to prevent excessive volatility in the rupee.

Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound)

The pound may trade between $1.42 and $1.46 this week. Currency markets are likely to continue to be volatile, driven by euro zone sovereign debt worries that also may dampen significant upside potential for the pound. Any indication that the newly formed coalition government is working more efficiently than expected may lend support to the pound, although it is still unclear whether any fiscal policy measures will be decided upon over these coming weeks. Economic data this week may lend support to the pound. First quarter 2010 gross domestic product is expected to be revised higher to 0.3% quarter-over-quarter, up from 0.2%. Government spending meanwhile is expected to have been lower than previously estimated in the first quarter. Longer term, a relatively more robust economy and tighter fiscal policy may make the pound more attractive than it has been in recent weeks.

Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen)

The yen may trade between 109 and 113 cents this week. Last week the yen surged from 107.6 cents to slightly above 112 cents before retreating. As the euro slumped to its four-year low and world equity markets experienced sharp declines there was heightened demand for the yen. In addition to safe haven buying of yen fixed income investments amid financial market turmoil, strengthening economic activity in Japan provided support to the currency. Japan reported 1.2% growth in gross domestic product for the first quarter of this year. The increase in economic activity was attributable to a rise in exports and stronger domestic demand. The yen may trade around current levels until investor sentiment improves over Europe’s financial problems.

Further Information
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Tel: +971 (0)4 361 1616 Email: info@dgcx.ae

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.

Copyright CPM Group 2009. The views expressed within are solely those of CPM Group. Such information has not been verified by the DGCX, nor does DGCX make any representations as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change. While every effort has been made to ensure that the accuracy of the material contained in the reports is correct, CPM Group or DGCX cannot be held liable for errors or omissions. CPM Group or DGCX are not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here. This report is distributed weekly by DGCX to provide market participants with information and statistics related to specific commodities and currencies. CPM Group, a commodities consulting company, produces this report for DGCX. Visit www.cpmgroup.com for additional information.

Reference herein to “DGCX” shall mean the Dubai Gold & Commodities Exchange DMCC. This publication is for information only and does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. Neither DGCX nor its affiliates, associates, representatives, directors or employees, shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this publication. DGCX shall not be responsible for any errors or omissions contained in this publication. All information, descriptions, examples and calculations contained in this publication are for guidance purposes only and should not be treated as definitive. No part of this publication may be redistributed or reproduced without written permission from DGCX. Those wishing either to trade futures and options contracts on DGCX, or to offer and sell them to others should establish their regulatory position before doing so. DGCX is regulated by the Emirates Securities and Commodities Authority (ESCA). ESCA is a member of the International Organisation of Securities Commissions (IOSCO).

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Dubai Gold & Commodities Exchange Weekly Market Views - May 23, 2010