Dubai Gold & Commodities Exchange Weekly Market Views - May 9, 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).

 

Oil had a volatile week, trading as high as $87.10 on Monday 3 May and as low as $75.80 on Thursday. Prices recovered to settle at $75.14 on Friday 7 May. We would like to say that prices dropped sharply as market participants aligned their price expectations with current fundamental realities. EIA data showed that U.S. crude oil inventories rose by 2.76 million barrels during the week ending 30 April, for example. However, the reality is that petroleum prices fell along with other assets as investors liquidated long positions out of concerns over a possible Greek sovereign debt default and the economic consequences of  broader sovereign debt issues. The U.S. dollar also exhibited strength in line with euro zone concerns, adding further weight on oil prices. While last week’s sell-off may prove temporary, volatility may not. Oil prices could move toward $80 this week if investors begin rebuilding some of their long positions. Prices also could test $75 if the U.S. dollar continues to appreciate.

Prices may top $19.00 early this week, but could decline soon afterward on profit-taking. Silver fell sharply early last week amid a broad commodities sell-off and a rising U.S. dollar. Concerns also surfaced over fabrication demand prospects for silver as European sovereign debt problems increased. Demand for raw materials came into question as prices for many commodities fell. Silver’s financial traits were not enough to support silver, but relatively low prices attracted strong buying on Friday 7 May. Prices rallied from a low of $17.27 on Thursday to close above $18.00 on Friday. Investors took the dip in prices as a buying opportunity, and there also may have been increased purchases from some fabricators. Silver price volatility should be expected to continue this week. While seasonal weakness for silver is nearing, investors may keep prices supported, at least this week. A sharp decline in prices may be limited to the $17.00 level, at which point bargain hunting may resume. Combined exchange traded fund silver holdings were 462.8 million ounces on 6 May, up from 459.4 million ounces at the end of the previous week.

The rupee may hold above 218 cents per 100 rupee this week. The rupee fell sharply last week, after several weeks of trading around 224 cents. Concerns over Grecian financial problems spread into emerging markets when equity values fell sharply. The Sensex fell 4.5% last week as investors moved into the U.S. dollar and gold. The rupee may be vulnerable to further declines amid current market sentiment, but longer term the rupee should be expected to appreciate against the dollar. Economic data for India continues to show strong growth, although there have been increasing concerns over rising inflation. High consumer prices index figures may continue to influence the Reserve Bank of India’s decision to keep raising interest rates.

The pound could trade around $1.47 this week as investors digest the results of parliamentary elections. The pound had been declining modestly early last week, but fell sharply on Thursday as sovereign debt concerns surged and parliamentary elections were held. No political party won the majority, suggesting that a hung parliament may have more difficulty in addressing the United Kingdom’s budget problems. The pound fell to $1.4489 on Thursday before moving back above $1.46. On Friday 7 May the pound received a boost from ratings agencies as they stated that the United Kingdom’s credit rating was in no near-term danger of been downgraded. This gives the newly elected parliament time to address the government debt problems. If weak economic conditions persist, however, the pound may have scope for further declines.

The yen may move between 108 and 110 cents this week, although investors could repatriate more funds if turmoil in overseas markets continues. The yen rallied last week as investors became increasingly risk averse amid euro zone financial problems and large declines across most asset classes. The yen rallied from 105 cents at the start of last week toward 112 cents before settling at 109 cents on Friday. A sharp decline in equity markets in the United States on Thursday in addition to European sovereign debt concerns helped push the yen higher while stronger than expected employment data and relatively stable financial markets on Friday weighed on the yen. If financial market volatility begins to ease this week, the yen may move to test support levels.

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.