Dubai Gold & Commodities Exchange Weekly Market Views - Feb 14, 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).

 

WTI oil prices could move between $71 and $78. Prices inched above $75 last week as the U.S. dollar depreciated and winter storms across the Northeastern United States caused some bullish sentiment regarding heating demand. Despite OPEC’s cautious outlook on global demand, the U.S. Energy Information Administration raised its 2010 and 2011 projections for global liquid fuels consumption to 85.3 million b/d and 86.9 million b/d, respectively. Meanwhile, the International Energy Agency also made upward revisions to its demand forecasts. The OECD energy watchdog expects global oil demand to total 86.5 million b/d in 2010, 170,000 barrels higher than its January projection. Strong demand from emerging markets could continue to add upward momentum to crude oil prices.  The major downside risk remains a sluggish economic recovery in other major consuming regions. Economic growth and consequently oil demand may surprise markets by being stronger in the United States than has been expected, but weaker in Europe and Japan.

Silver may move sideways to higher this week. Prices could extend their rally to $16.00 or even higher this week, if investors feel the dip in prices in recent weeks is over. While prices might rise further, silver may not be able to sustain such levels as profit-taking might set in. Near-term resistance for silver is positioned at $17.00. Bargain hunting has picked up over the past several weeks, as many buyers have been taking advantage of silver prices below $16.00. Investors remain interested in silver on expectations that silver prices could rise sharply later this year. Investment demand has been stronger in the U.S. market, populated by global institutional and individual investors, than it has been in India and the Middle East, where investors take a more value-oriented approach to investing. Many investors in the New York market continue to hold large net long positions. Fabricators also have been taking the opportunity to buy silver on price declines. Demand for silver in several industries remains strong. As of 12 February combined ETF silver holdings were 468.9 million ounces, up 0.5% from 466.6 million ounces on 5 February.

The Indian rupee may remain volatile this week, most likely moving between 212 cents and 216 cents. The rupee rose 1.2% last week on strengthening domestic equity markets and on expectations that the positive growth of the Indian economy could be sustained. Foreign institutional investors (FII’s) have been net sellers of Indian equities over the past several weeks. This has largely been weighing on the rupee. Last week FII’s were net sellers of $620.5 million worth of domestic Indian stocks, more than three times what they sold during the week ending 5 February. FII’s have been pulling back their funds from the Indian equity markets largely because of alternative investment opportunities in other markets. The Reserve Bank of India’s move to increase its cash reserve requirement has been supportive of the Indian rupee, however.

The pound may trade between $1.55 and $1.58 this week. The pound is not likely to head much lower at this time, since it already is bouncing off of multi-month lows. Sterling appears to be receiving some support from market participants moving away from the euro. The strength in the U.S. dollar, however, is capping gains made by the pound. The United Kingdom economy is expected to recover at a slow pace in the coming quarters and this week’s economic indicators may continue to demonstrate this. Concerns linger over the United Kingdom’s government budget debt as well as the country’s sluggish economic recovery. The coming weeks’ economic data may provide further cues on the Bank of England’s stance over monetary policy.

The Japanese yen could drift lower, toward 108 cents — 109 cents, this week. Last week the yen mostly traded around 111 cents. The Japanese gross domestic product (GDP) has risen for the past two consecutive quarters. Japan’s GDP rose at an annualized rate of 3.6% during the fourth quarter of 2009. This was up from 1.3% growth during the third quarter. A large part of the growth in the fourth quarter may have come from increasing exports. Domestic demand from consumers, on the other hand, remains weak. Despite low prices and monetary easing measures by the Japanese government, many domestic consumers are still reluctant to purchase. They expect prices of many good and services to fall further. The Bank of Japan may provide further quantitative easing to drive consumer spending in order to sustain current economic growth.

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.