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Dubai Gold And Commodities Exchange Weekly Views 29 Nov, 2009

Date 29/11/2009

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Provided by CPM Group, Vol. I, No. 23, 29 Nov 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).

 

Commodities Overview Currencies Overview
Precious metals prices continue to move higher, with gold reaching record levels. Investors have been driving the increase in prices, out of a range of economic, political, and financial concerns. The last two weeks saw a diminution of the price sensitivity of some investors, including some in India and North America: Investors that had resisted buying into the rally to record high gold prices capitulated, and started buying. This helped propel prices higher last week. This week, profit-taking may take prices lower. The same is true in silver. It will be critical to see at what price levels investors resume buying, if prices do sell-off. Most likely buyers will stand aside until prices stop falling. Any such round of profit-taking could be short and shallow, given the broad and deep concerns investors have toward other assets, currencies, political conditions from the United States to the Middle East, and other factors. Crude oil prices may move in a broad range, meanwhile, reflecting an absence of forces that could drive prices significantly higher or lower at this point. Petroleum prices may be around current fair market-clearing price levels, and could trade here for a while yet. That said, investors could panic or grow impatient with oil prices, knocking them for a drop.

Currency markets could be unsettled this week. The dollar weakened sharply last week. Further declines may not be seen for the dollar, but the dollar could toss and turn against the euro and other currencies. The European and North American economies are moving toward an economic recovery. Whether they will achieve a sustainable recovery or fall back into recession is not clear. Pending any major economic or financial disruption, recovery seems most likely, but there are any number of problems looming over the world economy at present that could upset this outlook. Investors are rightly concerned about the myriad of developments which could go wrong, upsetting the apple cart. That said, recent economic data suggests a move toward a healthy recovery. Nay-sayers inappropriately criticized the 2.8% estimate of U.S. third quarter real GDP growth as being anemic and tepid. In fact, it is right where it should be, in line with real GDP growth rates coming out of the past two recessions, and at a level that suggests non-inflationary sustainable growth. Recoveries in the 1960s and early 1970s saw stronger rebounds, which tended to bring inflationary pressures along with them and lead to shorter and less sustainable economic recoveries.

Commodities
Currencies
DGCX Prices & Daily Volumes
Market
(as at Nov 26, 2009)

Current Week close

% Change

Change
Weekly High

Weekly Low

Gold ($/ounce)

$1,194.6

4%

1,194.6
1,123.00
Silver ($/ounce)

 $18.65

1.06%

18.78
17.65
Euro ($/Euro)

 $1.501

1%

1.501
1.480
GBP ($/GBP)

$1.650

0.12%

1.687
1.647
INR ($/100 INR)

 $2.161

0.65%

2.183
2.138
JPY ($/100 Yen)

 $1.156

2.85%

1.128
1.116
WTI ($/b)

$76.20

-1.64%

80.78
76.80

ADV (9,162)Volume

Economic Indicators

Indicator

Change

Value

Change

% Change

CRB Index

278.41
0.88

0.3%

U.S. Dollar Index

74.30
-0.88

-1.2%

T-Bills

0.04%
0.01%

0.0%

DJIA

10,464
38.09

0.4%

FTSE Global All-Cap

328.16
-3.50

-1.1%

Source: Bloomberg Data

COMMODITIES
Crude Oil
WTI

As OPEC ramps up production in the face of somewhat less dynamic demand growth, WTI oil prices may struggle for further gains and could fall toward $72 in the near term. The influential members in OPEC are concerned that economic conditions remain too fragile to support prices over $80. Adding downward momentum to the fundamental weakness, fair-weather investors could start to gradually unwind their long positions as market perceptions about the state of the economy remain unsettled and volatile. Negative economic news is flowing alongside ongoing signs that the recession is ending. This could push and pull oil prices in the $70 - $82 range into 2010. In addition, a few words by U.S. market regulators about possible regulatory restrictions on oil trading could trigger additional long liquidation. The ongoing economic rebound could still force prices higher. However, the dual downside risks of economic uncertainty and excess supply remain bearish for oil prices in the near term.

Gold
Gold

Gold prices may remain strong early this week, but could decline later in the week. First, however, prices may make a run toward $1,200. The December roll is in the process of being resolved, but there still is short-term congestion in the markets. The resolution of short-term tightness in the New York market and profit-taking could push gold lower by late in the week. Even so, any such sell-off may be relatively limited. At this point, gold seems likely to hold above $1,120, as there is a great deal of investor demand that would be expected to come into the market on any sell off. A more forceful sell-off could knock gold down to around $1,070. Combined ETF gold holdings reached a record 56.6 million ounces as of 25 November, up slightly from 56.5 million ounces in the prior week. Commodity funds and institutional investors meanwhile continue to hold large net long positions. A volatile and weak U.S. dollar should continue to support gold prices. There also has been growing concern over political conditions around the world.

Silver
Silver

Silver prices could rise sharply, possibly testing $19.00 or $20.00, before retreating toward $18.25 later in the week. Strong support for silver prices is positioned at $17.50 — $17.75. The roll in the New York market is currently underway, which is expected to support silver prices. Much of the roll has been made already, however. The primary factor behind the rise in silver prices has been investment demand, as investors are concerned that the nascent economic recovery could evaporate, and the U.S. economy could drop back into a new recession. This, plus speculative buying, has investors and others adding to already large long positions on expectations of even higher prices yet this week, and over the next few months. Many investors are concerned about currency markets and the potential for a sharp drop in equity markets. As of 25 November combined ETF silver holdings reached a fresh record of 453.0 million ounces, up 1.9% from 444.8 million ounces in the previous week. Fabricators have been buying silver even at such high prices as they foresee demand for silver in some sectors such as electronics, batteries, and solar power panels pick up sharply in the first half of 2010.

CURRENCIES
Euro / Dollar DEUR (US $ quoted in cents per Euro)
Euro The euro may possibly test $1.51 early this week, before tapering off a bit towards the end of the week. The euro rose last week, testing $1.50 on 25 November.  A large part of the gain in the euro reflected strong equity markets and improved macroeconomic data released in the eurozone. The German Ifo Business Climate Index, which measures business expectations for future economic developments, rose to 93.9 points in November, from 92.0 points in October. The unemployment figures along with gross domestic product figures for the eurozone are scheduled to be released this week. These are likely to be important indicators providing a firmer direction the euro. Economic activity may be picking up, but economic data overall may not necessarily reflect this as wholeheartedly as markets would like.
Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees)
INR

The Indian rupee could move higher this week, possibly testing 217 cents — 218 cents per 100 rupee. Profit-taking by speculators could push the rupee slightly lower, but any such move would most likely be only for a brief time. There continues to be ongoing foreign inflows in the domestic equity markets, which has been helping the rupee move higher. The Indian economy has been in a better shape compared to many of its Asian counterparts. This has been one of the primary reasons for attracting sustained capital inflows into the country. The political stability in the country also has been one of the drivers in boosting the rupee. Last week the rupee rose partly on an uptick in the Indian benchmark index, Sensex, and partly based on weak month-end demand for U.S. dollars from oil refiners and other importers.

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

The pound may continue to hold above $1.65 this week. The lack of major economic data to be released this week from the United Kingdom may keep the pound range-bound. Economic data from the United States may have a stronger influence on the pound this week. There has been  growing confusion over whether the Bank of England (BOE) will or will not continue with its asset purchasing program beyond this year. At its last monetary policy meeting there was a suggestion to increase the BOE’s quantitative easing program. Such an increase may weigh on the pound, which could depend on how economic data fares over the next several weeks.

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

The yen could shed some if its recent gains and move toward 110 cents — 111 cents this week. Fundamentally, the yen remains in an overbought state. The yen rose sharply last week on a better than expected third quarter gross domestic product figure, which stood at 1.2%. Given the fact that the Japanese economy relies to a large extent on its exports, an ongoing appreciation of the yen could have a negative impact on Japanese exports. Similar to the U.S. dollar, the yen also has been a favorable carry trade option to buy high yielding bonds and other emerging market currencies. This could weigh on the yen. The Bank of Japan kept its interested rate unchanged at 0.1%.

Further Information
Full details on all of our products and DGCX news can be found at www.dgcx.ae. Alternatively, if you would like to speak with a Relationship Manager, please contact us.
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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