Dubai Gold & Commodities Exchange Weekly Market Views - November 1, 2009

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 once again may be heading toward becoming stuck in a trading range. After breaking out of the $65 - $75 trading range two weeks ago, prices have oscillated on either side of $80. A weaker U.S. dollar and hopes for economic improvements recently allowed oil prices to build support around $80. The dollar then showed signs of strengthening. Current fundamentals do not yet lend themselves to further sharp upward price moves. Last week oil market participants were encouraged by strong U.S. GDP figures. Even so, consumer confidence remains depressed, unemployment is high and rising, and global economic growth still is tenuous. With these macroeconomic factors in the foreground, crude prices fell below $77 on Friday 30 October, as profit-taking set-in. In the near term, any further dollar strength may be sufficient to push prices back toward $75. While fundamentals take time to catch up to current price levels, sudden sharp shifts in investor sentiment will be the key to whether prices reach for $85 or move back toward $70.

Silver prices could remain choppy this week, most likely moving between $16.00 and $17.25. A break below $16.00 could quickly push prices toward $15.75 or possibly even $15.25. This seems unlikely, however, given the recent strength in silver prices. Last week silver prices fell 7.7%. Part of the decline reflected strength in the U.S. dollar. Part of this reflected profit-taking and technically based selling by investors. Silver prices have been expected to fall below $17.00 over the past couple of weeks, a development that emerged last week. Prices recovered half of the drop by week’s end. The momentum behind the recent surge in silver prices largely was driven by strong investment demand and fabricator buying. Fabricators have been buying on anticipation that demand for silver in many industrial products will rise sharply as the global economy revives. Mixed macroeconomic indicators suggest improvements in some sectors of the economy. Investors have continued to add to their net long positions on expectations that silver prices could rise more forcefully later this year and into the first two quarters of the following year. Combined ETF silver holdings reached a record 427.9 million ounces at the end of last week.

This week the euro may remain volatile, trending slightly lower against the U.S. dollar. The euro could possibly move toward $1.45—$1.46. Last week the euro fell 1.8%. The euro had seemed overbought in recent weeks. Investors had been buying the euro not so much because they felt European growth would outpace the U.S. recovery, but because they were seeking higher yields and were increasing their willingness to diversify out of U.S. Treasuries into perceived somewhat riskier investments, as global economic activity seeks to revive. Macroeconomic indicators in both Europe and the United States continue to provide mixed signals. Credit markets continue to be tight while consumer spending remains at low levels. Unemployment in the euro area rose to 9.7% in September, up from 9.6% in August 7.7% during September 2008.

The Indian rupee could hold around current levels, with a possibility of moving slightly lower later this week. Support for the rupee is positioned at 208 cents per 100 rupee. The rupee fell 1.1% last week on weak domestic stock markets and on month-end demand for U.S. dollars from Indian importers. The Reserve Bank of India in its quarterly policy review last week stated that it would keep the interest rates unchanged. This announcement partly weighed on the rupee, pushing it toward 209 cents on 29 October. The benchmark stock index of India, Sensex, fell for the second consecutive week. The Sensex fell 5.4% last week as many investors took profits and repatriated some of their funds. On a net basis foreign investors sold around $12.1 million of Indian stocks last week.

The pound may head lower once more this week, especially if the Bank of England (BOE) announces that it will increase its quantitative easing program at this week’s monetary policy meeting. Market expectations are that the Bank will, by around 50 billion pounds, bringing its total debt repurchase program to 225 billion pounds. The BOE completed its 175 billion pounds repurchase program last week. Weaker than expected economic conditions for the third quarter of this year have increased concerns over the health of the economy in the United Kingdom for the next several quarters. If there is an increase in the BOE’s quantitative easing program the pound could head toward $1.60.

The Japanese yen could move between 108 cents and 112 cents this week, with a potential to trade on the lower end of this range. Yen trading was very volatile last week. The yen was weak early in the week, but then picked up sharply as the week progressed. A rush to safer haven currencies coupled with the announcement by the Bank of Japan that it would ease some of the fiscal stimulus toward the end of the year helped push the yen higher. Japanese unemployment fell for the second consecutive month, standing at 5.3% for September. A higher yen against the U.S. dollar has made Japanese goods less competitive against those of other Asian nations. This has been hurting Japanese export industries overall. Given this situation some Japanese manufacturers and automakers plan to increase their overseas production.

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.