Provided by CPM Group, Vol. 2, No.39 - September 26, 2010 |
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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). |
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| Commodities Overview | Currencies Overview | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gold prices continued to rise last week, setting record highs for the third consecutive week. Silver prices followed a similar upward trend, receiving support from its financial and industrial traits. WTI crude oil meanwhile was weighed down by supply concerns dissipating and expectations of soft demand in the weeks ahead. A weakening U.S. dollar did provide support for crude prices, however. Over the past two weeks the dollar’s decline has not only helped support crude oil prices, but also has been supportive of most commodities. Soft commodities, precious and base metals prices have risen over the past few weeks. Energy prices meanwhile have begun to trend higher. Expectations of additional stimulus measures from the Federal Reserve should economic conditions fare worse than currently anticipated in the coming months were reaffirmed last week. An increased supply of dollars into financial markets will likely help push the dollar lower and support dollar denominated commodities prices. Investors may seek to increase their exposure to commodities in the coming weeks, as most have been doing since the early part of this month. Prices have been rising for most commodities as long positions are being built and short positions are being covered. |
Currency exchange rates are undergoing a rebalancing act, following a period of pause in late August and early September. While each country is dealing with its own financial and economic problems there are major differences in what is being addressed. In developed economies the concern is over weak economic conditions and an uncompetitive exchange rate. In developing economies the worry is over high inflation due to strong economic growth, creating overpriced assets by way of large sums of foreign capital inflows, and currency exchange rate volatility, as foreign capital quickly flows out when market conditions change. As each country addresses its domestic dilemmas, it does so in an environment where other nations are doing the same, causing increased shifts in investor sentiment toward these currencies. This is not expected to change in the near term. Meanwhile as domestic concerns are addressed by monetary and fiscal authorities they are influencing investor attitudes toward trading partners’ currencies. In an increasingly connected global economy, given current financial and economic conditions in developed nations, which account for more than 60% of world gross domestic product, it should not be surprising to see continued currency rebalancing and volatility, especially if many of the issues facing developed and developing nations are attempted to be dealt with unilaterally. |
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DGCX Prices & Daily Volumes |
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ADV (8,144)
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Economic Indicators
Source: Bloomberg Data |
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| COMMODITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Crude Oil | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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WTI oil prices could rise, toward $78, this week. Prices near this level may encourage profit-taking, however. Last week crude oil prices fell to $74 following data that showed oil inventories in the United States rose in the same week that a large pipeline from Canada into the United States was shuttered. Although market participants expected a decline in United States crude oil stocks for the week ending 17 September, imports of crude oil from other sources made up for the shortfall tied to the closed pipeline. United States imports of crude oil totaled 9.3 million barrels per day (bpd) for the week ending 17 September, up 3.6% from 10 September according to the EIA. Crude oil prices rebounded late last week on a weakening U.S. dollar. A further decline in the dollar could support higher crude oil prices this week, but seasonally lower demand for crude oil from refiners in late September and early October may make such a move short-lived. Prices could move toward $74 beyond this week |
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| Gold | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gold prices broke above $1,300 on an intraday basis on 24 September. If prices are able to settle above this level on a sustained basis, it could result in increased investor interest in the metal. Fresh buying from investors could push the metal toward $1,320. If gold prices have difficulty settling above $1,300, there is a possibility that investors get nervous and liquidate their long positions. Prices could decline toward $1,280 if such liquidation were to occur. Any weakness in prices would be short-lived as market participants would use the decline in prices as a buying opportunity. Economic recovery in the developed world, from the last recession, is expected to be bumpy and prolonged. As long as this is the case market participants are expected to remain interested in gold. Additionally a lack of stability in the currency markets is expected to keep investors attracted to gold. Net long positions held by large non-commercial market participants are at extremely high levels, reflecting support for gold prices over the past few weeks. |
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| Silver | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Silver prices have risen around 19% over the past month. Prices are likely to continue rising this week. If silver prices are able to settle above $21.50 they could rise toward $23. Healthy demand from certain sectors is expected to continue propelling silver prices higher. The use of silver in solar panels is one such source of demand which is forecast to boost silver prices in the medium term. There is a significant amount of metal, by some estimates around four million ounces per month, being consumed by this sector at this time. The use of the metal in electronics is another source of demand. Demand for electronics is expected to continue growing in the near future, which is positive for silver fabrication demand. The strength in prices resulting from increased fabrication demand is expected to attract investors, pushing up the price of the metal further. At present there also are investors who are purchasing the metal as a safe haven, helping to provide additional support to prices. |
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CURRENCIES |
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| Euro / Dollar DEUR (US $ quoted in cents per Euro) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The euro may trade between $1.32 and $1.37 this week. Three major ratings agencies gave the European Financial Stability Facility, the euro zone’s bailout fund, a AAA grade on 20 September. This helped shore up confidence and demand for sovereign debt from financial troubled euro zone nations. Ireland and Portugal both saw positive demand for their debt last week. Worries about Ireland’s banking sector and Portugal’s widening trade deficit still remain, however, which has been pushing bond yields higher for these nations over the past few weeks. The U.S. dollar meanwhile fell after the Federal Reserve said it was prepared to provide additional accommodation to support its country’s economic recovery, which also helped pushed the euro higher. The euro rose 3.4% last week to settle at $1.3483 on 24 September, the highest since 16 April. |
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| Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The rupee may rise toward 224 cents per 100 rupees this week. The rupee has trended higher since the beginning of September. Foreign investors poured a net $6.1 billion dollars into India’s capital markets this month through 24 September. Strong demand for assets in India, a fast and large growing economy, has persuaded the nation to open up its markets more. India also is in need of funds to build its infrastructure. The government doubled the limit on foreign investment in government bonds to $10 billion and increased by 33% the limit on foreign investment in corporate bonds to $20 billion. These adjustments only apply to bonds with a maturity of five or more years. India is trying to attract longer term investors amid high yields for fixed income investments and growing confidence in India’s economy. |
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| Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The pound could test $1.60 this week. The pound fell early last week to $1.55 as data showed public sector net borrowing in the United Kingdom rose greater than expected in August. The pound rebounded from there, rising to a one month high around $1.58 late last week. The Federal Reserve announced on 21 September it was prepared to provide additional measures to support economic recovery in the United States, suggesting it may extend its asset purchasing program. The FTSE meanwhile reached a four month high of 5,635 on 21 September, indicating that investor sentiment toward the United Kingdom has been improving. Second quarter United Kingdom gross domestic product growth rate revisions available this week may subdue upward momentum if the figure is revised significantly below the earlier estimate of 1.7% year-to-year. |
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| Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The yen is likely to trade between 118 cents and 120 cents this week. Buying surged last week, pushing the yen from 116 cents toward 119 cents by Friday. The yen’s appreciation runs counter to the Bank of Japan’s efforts to devalue the currency. The BOJ sold an estimated two trillion yen in the previous week, which had pushed the yen from 120 cents to 116 cents. There is speculation that the Japanese government may again intervene in the currency markets. It may have on 24 September. There continues to be a large number of market participants whom are net long the yen. The BOJ has not ruled out other stimulus measures, which could weigh on the yen and may be a topic of further speculation in the coming months, especially if the yen continues to appreciate. |
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Further Information |
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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. |
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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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FTSE Mondo Visione Exchanges Index: 100,341.51 +20.62
Dubai Gold & Commodities Exchange Weekly Market Views - September 26, 2010
Date 26/09/2010
