Dubai Gold & Commodities Exchange Weekly Views 20 Dec 2009

Provided by CPM Group, Vol. I, No. 26, 20 Dec2009

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

Precious metals prices sold off last week. Petroleum meanwhile rebounded from its declines the week before. Prices for these and other commodities may be choppy this week, but trade largely sideways. Precious metals may find a floor while oil consolidates recent increases. The selling pressure may continue in precious metals, but strong buying on dips are expected to limit any further declines. Crude oil meanwhile may trade largely between $71 and $75. Much of the weakness in precious metals reflected investor attitudes shifting more toward a positive economic outlook, a shift we expect to continue, albeit with interruptions, over the next weeks and months. This also contributed to a more positive view toward the dollar, which was negative for precious metals in the past week. The dollar also was rising as investors focused on the reality that, for all of its problems, the U.S. economy and equity market probably were in better shape and presented more promising near-term prospects than did Europe, the United Kingdom, and Japan. Should the dollar continue to strengthen, a further rise in the dollar does not necessarily mean that precious metals and other commodities prices will decline. The dollar can rise, or stabilize, while commodities price do the same.

The dollar has staged a forceful upward move since the beginning of December. The longer term trend may be upward for the dollar, although this week there could be a pause in the upward move. The dollar strength may have been a bit overdone last week, as investors reacted harshly to news about the financial conditions within Greece. There may be some moderation of the anti-euro bias in the market this week. We should admit that six months ago our view was that the dollar had bottomed out and was about to stage a rally of 5% or so. The dollar was at $1.40 against the euro at that time. It steadily deteriorated in value until reaching $1.51 in late November. While the dollar has recovered since then, it still has not regained what we had viewed as a bottom in July. While the bullishness toward the dollar may see some moderation next week, this should be viewed as a pause in a broader rebalancing of values among the major traded currencies. The dollar still faces weakness against the yuan and other currencies. Countries running trade and/or current account surpluses remain likely to see their currencies outperform the dollar, while the currencies of commodities exporting countries such as Australia, Canada, and South Africa may see their currencies rise as well.

DGCX Prices & Daily Volumes

Market
(as at Dec 11, 2009)

Current Week close

% Change

Change

Weekly High

Weekly Low

Gold ($/ounce)

$1098.90

-1.14%

▼

1142.20

1098.90

Silver ($/ounce)

$17.150

0.85%

▲

17.71

17.15

Euro ($/Euro)

$1.431

-1.79%

▼

1.468

1.431

GBP ($/GBP)

$1.607

-0.47%

▼

1.640

1.607

INR ($/100 INR)

$2.120

-0.70%

▼

2.147

2.120

JPY ($/100 Yen)

$1.109

-0.48%

▼

1.133

1.109

WTI ($/b)

$68.91

3.98%

▲

73.38

68.91

ADV (9,180)

Market closed on 18 Dec

Economic Indicators

Indicator	Change	Value	Change	% Change
CRB Index	▲	276.14	5.28	1.9%
U.S. Dollar Index	▲	77.77	1.20	1.6%
T-Bills	▲	0.04%	0.01%	0.0%
DJIA	▼	10,329	-142.61	-1.4%
FTSE Global All-Cap	▼	323.82	-3.49	-1.1%

Source: Bloomberg Data

COMMODITIES

Crude Oil

Oil regained upward momentum last week, moving close to $73 by the end of trading on Friday 18 December. WTI oil, the benchmark for light sweet crude oil in the United States, received support from a weekly decline in U.S. inventories. Distillate demand is receiving a boost from cold temperatures while kerosene demand is benefitting from year-on-year improvements in air travel. These bullish indicators may not be enough to push prices over $75 this week. Demand remains severely weakened by the global slowdown and supplies are rising. Since the middle of November, Dubai crude has been trading at a premium to WTI, which reveals the current asymmetrical demand environment. Consumption in Asia remains much healthier than in the United States and Europe. Investor interest may keep oil prices above $70 into 2010, but the upside potential seems limited without a sustained improvement in global demand.

Gold

Gold prices may begin to consolidate as the year comes closer to an end. The recent strength in the U.S. dollar has helped weigh on gold prices, but as has been the case over the past several months investors have stepped up their purchases as gold prices have dipped, lending support to prices. This occurred last week after gold briefly traded below $1,100. The liquidation of gold positions by shorter term focused market participants may now be behind the market. Despite the appreciating dollar and gold prices having declined in recent weeks, gold prices are still expected to head higher in the coming months. Investors continue to be concerned over the health of financial markets and economic conditions worldwide. Increased concerns were sparked last week as some eurozone nations came into the spotlight over their individual financial troubles. The last two weeks of the year may see gold prices move in a choppy sideways fashion as markets face year-end book squaring and there tends to be slightly less liquidity across financial markets, including gold. Any price dips in gold may be followed by bargain-hunting.

Silver

Silver prices may tread along support at $17.00 this week, but still have the potential to trade between $16.25 and $18.00. Although prices remain vulnerable to a strong sell-off, price dips below $17.00 may be short-lived as investors continue to be interested in silver. Combined exchange traded fund (ETF) silver holdings reached a record 465.17 million ounces on 11 December amid an overall decline in silver prices that week after having reached multi-month highs earlier this month. As of 17 December combined ETF silver holdings had declined slightly to total 464.82 million ounces. Not only has investment demand picked up on bargain-hunting opportunities, but fabricators also have stepped up their purchases when prices have fallen below certain support levels. Similar to gold, silver prices may move in a sideways fashion during the remaining two weeks of the year as year-end adjustments are made to portfolios and liquidity eases across the silver market.

CURRENCIES

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

After having fallen sharply over the last few weeks, the euro may begin to find a bottom this week. The euro may head toward $1.42 as the currency finds a base along this support level. The euro had been expected to hold above $1.45, but as it fell below this mark there was an increase in stop-loss selling as well as shorter term focused selling that pushed the euro toward $1.42 - $1.43. Concerns over eurozone member countries that are facing weak financial and economic conditions have spread in recent weeks, but these anxieties seem to be in the midst of easing. While the downgrade of Greece’s sovereign credit rating may have caused alarm among investors, Ireland’s economy recently showed signs of stabilizing. Recently, there has been rising concern over Austria’s banking sector, however.

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

The Indian rupee may trade around the 212 cents support level this week. The rupee has managed to hold up above this level for several weeks now and a move below 212 cents could spur increased buying. Positive sentiment over the Indian economy has helped support the rupee over the past several months. An overall strong Indian stock market and firm economic growth in India has been attracting large sums of foreign direct investment flows, lending additional support to the rupee. With lighter than usual liquidity expected in financial markets over the remaining weeks of the year, the rupee may consolidate around 212 cents.

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

The pound may move along support at $1.60 this week as it continues to face downward pressure from an appreciating U.S. dollar. The pound is receiving support from a weakening euro. While concerns continue over weak economic conditions in the United Kingdom there has been recent data that suggests a stabilization. Recent unemployment data was better than expected while inflation figures have been rising at stronger pace than anticipated. This may indicate renewed economic expansion, but also suggests that that Bank of England (BOE) may increase interest rates sooner than expected. There also is an expectation that the BOE may cease its asset purchase program after it completes the 200 billion pound program, expected in the beginning of next year.

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

The yen may continue to weaken over the remainder of the year, but it is likely to hold up above 106 - 108 cents. The Bank of Japan recently announced a 10 trillion yen lending program, which has been weighing on the currency over the past couple of weeks. There has been increased concern over deflation over the past several months as the BOJ now seems more comfortable with a weaker yen than it had before. A weakening euro is lending support to the yen, however. Safe-haven buying of the yen is emerging on eurozone concerns. Increased buying has occurred when the yen tests support levels.

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.

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