Provided by CPM Group, Vol. 2, No. 5, 31 Jan 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, silver, and petroleum prices all headed lower last week. An appreciating U.S. dollar helped push prices lower for many commodities. Investor interest in precious metals remains firm, but has eased from the levels seen in the second half of last year. Investment demand for silver is doing better than gold, however. Concerns over financial markets and economic conditions continue although are not at the heights when economic growth was contracting sharply in many countries around the world. That said, a wave of economic and political ills could quickly shift investor sentiment. Recent attention has focused on weak economic conditions in some member countries of the eurozone. This may help support the U.S. dollar and cap gold and silver price strength in the near-term. Petroleum prices have declined as demand prospects have waned in recent weeks. With prices at levels not seen since October 2009, investors may begin to increase their long positions. Prices may have to find a base along $72 for them head higher this week.
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The U.S. dollar index could continue to strengthen this week. There may be bouts of profit-taking and technically based selling, however, the overall trend is expected to be higher. Last week the U.S. dollar was firm, rising against most major currencies. Macroeconomic data released was positive for the United States, signaling a further stabilization and better prospects for the U.S. economy. The news that the U.S. fourth quarter gross domestic product figure expanded 5.7% provided a boost to the U.S. dollar at the end of last week. Investors continue to look at the U.S. dollar as a safe haven and are keen that the United States economy is recovering at a faster and stronger pace than many of its counterparts, such as Europe and Japan. Many investors are moving toward U.S. dollar denominated assets, which has been supportive of the dollar. The Fed kept interest rates unchanged at its monetary policy meeting last Wednesday. It may be too early to tell when the Fed will raise interest rates, but recent market expectations are that it could be no earlier than the second quarter of this year.
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DGCX Prices & Daily Volumes |
Market
(as at Jan 29, 2010) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
Gold ($/ounce) |
$1082.00 |
-0.77% |
▼ |
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Silver ($/ounce) |
$16.265 |
-4.44% |
▼ |
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Euro ($/Euro) |
$1.388 |
-1.89% |
▼ |
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GBP ($/GBP) |
$1.601 |
-0.68% |
▼ |
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INR ($/100 INR) |
$2.159 |
-0.05% |
▼ |
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JPY ($/100 Yen) |
$1.106 |
-0.53% |
▼ |
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WTI ($/b) |
$72.89 |
-2.21% |
▼ |
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ADV (9,400)
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Economic Indicators
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
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-3.6% |
U.S. Dollar Index |
▲ |
79.48 |
1.21 |
1.5% |
T-Bills
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▲ |
0.07% |
0.02% |
0.0% |
DJIA |
▼ |
10,067 |
-105.65 |
-1.0% |
FTSE Global All-Cap
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▼ |
188.79 |
-5.15 |
-2.7% |
Source: Bloomberg Data |
COMMODITIES |
Crude Oil |
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WTI oil prices remained under downward pressure last week. Lower than expected new homes sales in the United States, concerns about the eurozone’s fiscal health, as well as rising distillate and gasoline stocks contributed to this bearish momentum. Although U.S. crude inventories fell by 3.9 million barrels last week and are within the five-year average, most of this normalization of stock levels has been due to declining import levels and lower refinery runs. These macro and market specific factors have raised doubts about the near-term demand prospects for both physical and paper barrels. The oil market may remain on edge over the next few weeks as a result. However, current price levels present good buying opportunities for market participants. As industrial demand strengthens and non-commercials rebuild their long positions, prices could trend slightly higher, albeit in a non-linear fashion. This week oil could trade between $72 and $76.
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Gold |
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Gold prices may head toward $1,070 as they find a base. A break below this level is possible and prices may move toward $1,050. Below this mark there is stronger support for gold at $1,000. Gold prices have not been able to mount a sustainable rally since peaking in early December 2009. Investment demand held up in December, but has eased in recent weeks. Demand for gold by investors continues to be firm, but is not as strong as was seen leading up to record high prices last year. The roll of gold futures contracts in the New York market helped support gold prices last week. A strengthening U.S. dollar against other major currencies, however, has been weighing on gold. It is possible that gold prices may make a strong rally once more over the next two to three months. Financial markets and economic conditions remain vulnerable, political conditions remain tenuous and there are many forces abroad in the world which could precipitate a crisis that could drive investors forcefully right back into gold.
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Silver |
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Silver prices are expected to trade sideways this week, most likely moving between $16.00 and $17.75. A break below $16.00 could push silver prices toward $15.50 or perhaps even $15.00. This seems unlikely, however. Investor interest in silver remains firm. There has been some liquidation of some of the silver ETFs, but most longer term focused investors continue to hold on to their silver investments. Many short-term oriented investors have backed away from silver in anticipation that most economic fears have eased and the worst is behind the market. Combined ETF silver holdings were 466.8 million ounces as of 29 January, up a slight 0.3% from 465.5 million ounces on 22 January. Investment demand for silver not only is strong in the physical market, but also remains firm in the futures and options market. Many investors continue to hold large net long positions, suggesting that they expect silver prices to rise in the near future. Fabricators of silver-bearing products continue to take advantage of price dips and have been adding to their inventories.
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CURRENCIES |
Euro / Dollar DEUR (US $ quoted in cents per Euro) |
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The euro may recover this week after having depreciated sharply against the U.S. dollar last week. Confidence in the eurozone declined as concerns grew over rising government debt problems facing several member nations. Weakening economic conditions in the eurozone and better than expected economic data for the United States also weighed on the euro. Rising concerns over Greece’s sovereign debt and reduced investor appetite for Greek bonds helped push the euro lower. Yields on 10-year Greek bonds expanded to more than four percentage points over 10-year German bonds last week. The euro may find a base early this week before possibly moving back above $1.40 later in the week.
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Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) |
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This week the Indian rupee is likely to trade between 215 cents and 217 cents per 100 rupee. Last week the rupee hovered around 216 cents. On Friday, 29 January the Reserve Bank of India (RBI) raised the cash reserve ratio by 75 basis points, to 5.75%. This measure primarily was taken to reduce liquidity from the domestic market and help cap rising inflationary pressures. Inflation in India year-on-year was 7.3% in December. The RBI forecast inflation to reach 8.5% by the first quarter of this year. Foreign institutional investors were net sellers of $1.6 billion worth of Indian equities last week. Part of the selling may have reflected a tightening monetary policy by the RBI. If the selling in the domestic equity markets persists there could be additional downward pressure on the rupee.
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Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) |
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The pound is expected to weaken early this week, possibly testing $1.59, before heading slightly higher. The pound had been moving sideways last week, mostly between $1.61 and $1.63, before dropping below $1.60 on Friday. A large part of the decline in the pound against the U.S. dollar may have resulted from a better than expected gross domestic product (GDP) figure for the United States. The United States GDP expanded at 5.7% in the fourth quarter of 2009, which was higher than market expectations of 4.7%. The United Kingdom continues to struggle as bleak economic activity is observed month after month. There have been ongoing talks that the government could provide additional quantitative measures to get the economy back on track.
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Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) |
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The yen could remain subdued this week, moving between 109 cents and 111 cents. Consumer spending remains weak in Japan. A growing number of price-sensitive consumers are delaying their purchases on expectations of further declines in prices. Deflation continues to be a major concern. As a result, the Japanese government has been pumping additional liquidity into its markets. Major economic data released in Japan continues to portray a gloomy picture of the Japanese economy. This has resulted in many domestic investors moving their assets away from the yen and into higher yielding currencies. The Japanese government is likely to take action to weaken the yen at some point in the future. A weaker yen is beneficial for Japanese exports as it could help drive economic growth in Japan.
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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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