Posts Tagged ‘Platinum’
Commodity Prices Retreat As Disappointing Eco Data Sent USD Higher
Although crude oil added +0.3% to settle at 70.82 Thursday, trading momentum was weakened as the US reported a series of disappointing data. Investors worried that economic recovery might not come as expected and thus drove capital away from risky assets.
US initial jobless claims increased to 551K in the week ended September 26 from 534K in the prior week. The market had anticipated a much more modest rise to 535K. After making a peak in March, initial jobless claims have dropped -18% in 26 weeks. However, the decline was rather gradual compared with previous recessions in 1970s and 1980s. The sluggishness in the falls in claims signals recovery in the job market is slow.
ISM manufacturing index slid to 52.6 in September from 52.9 in the previous month. The market forecast an improvement to 54. Although the index suggested manufacturing activities remained in expansion, decline in some components, such as new orders (Sep: 60.8; Aug: 64.9) and productions (Sep: 55.7, Aug: 61.9), indicated the sector remained vulnerable.
Stock market plunged as investors concern about the employment and growth outlook in the economy. The Dow Jones Industrial Average sank -2.1% to 9509 while S&P 500 Index lost -2.6% to 1030. Today in Asia, the MSCI Asia Pacific Index slips -2%. Japan’s Nikkei 225 Stock Average loses -2.7% to 9715 although the nation’s unemployment rate surprisingly fell to 5.5%, compared with consensus of an increase to 5.8%, in August from 5.7% a month ago. Japan’s household spending also unexpectedly gained +2.6% yoy in August after plummeting -2% in July.
The market’s focus is on US’ employment report today. Payrolls should have dropped -187K in September (-216K in August), sending the unemployment rate to 9.8% from 9.7% in August.
Gold price pulled back and closed below 1000 Thursday as USD rallied. Apart from uncertain economic outlook, the dollar advanced +0.65 against the euro because ECB President Trichet said that euro’s recent appreciation has been too much and disorderly movement in the currency market will have adverse impact on economy. The worst performers were commodity currencies in which Australian dollar, New Zealand dollar and Canadian dollar plunged -1.6%, -1.2% and -1.4% respectively.
Recent strength in gold price hurt physical demand. Besides India, Turkey reported that imports were down -86% mom to 1.7 metric tons in September. In the first months, total imports in the country were 32.9 metric tons, compared with 164.6 metric tons in the same period last year.
Commodities Strengthen as IMF Upgrades Credit Market Outlook
Crude oil price rebounds above 67 in European morning as USD retreats. IMF’s improved outlook on global credits, strong China PMI and Japan industrial output data also revive market expectations on economic recovery. In China, oil stocks plunge after the Chinese government reduced the ex-factory fuel prices.
In its semi-annual report, IMF cut its estimates for loan and investment write-downs by -15% to $3.4 trillion, suggesting improvement in global credit market and world economy. As stated in the report, ‘systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvement in the real economy’. However, ‘credit channels are still impaired and the economic recovery is likely to be slow’. Banks’ losses on bad assets will probably increase by $470B, $420B and $140B from July 09 through next year in the Eurozone, the US and the UK respectively.
According to a survey done by HSBC, China’s manufacturing PMI slid 0.1 point to 55 in September from 55.1 in August. Despite the fall, a reading above 50 represented expansion and it’s the 6th consecutive month that the country’s manufacturing sector is in expansionary phrase. The official PMI, to be released tomorrow, is expected to have risen to 55 during the month from 54 in August.
In Japan, industrial production index rose +1.8% mom in August following an upwardly revised +2.1% increase in the prior month. On annual basis, the contraction of -18.7% was much lower than -22.7% recorded in July. Looking into the details, the shipment index for capital goods turned positive, gaining +1.9% qoq in July-August from -17% in April-June, for the first time in 2 years. This might be signaling that capex has almost bottomed as the shipment index for capital goods is usually a leading indicator for capex.
The Chinese government announced to reduce ex-factory prices of gasoline and diesel by RMB 190 a metric ton. Sinopec (0386.HK) and Petrochina (0857.HK) fell -1.4% to HK$ 6.59 and -1.6% to HK$ 8.76 respectively, underperforming -0.3% decline of the benchmark Hang Seng Index, as the cuts will hurt profit margins of refiners.
USD retreats against major currencies amid batter economic outlook as investors seek higher risks. Leading gains against the dollar were Australian dollar and New Zealand dollar. In Australia, retail sales rose +0.9% mom in August after falling -0.9% a month ago. The gain was higher than consensus of +0.5%. In New Zealand, NBNZ business confidence improved strongly to 49.1 in September from 34.2 in the prior month. Against the euro, the greenback weakens to 1.466 after rebounding to 1.453 Tuesday. The currency pair will likely record a decline of -4.7% in the third quarter, after gaining more than +5% in the second quarter.
Gold price climbs above 1000 again as the dollar plummets. No matter whether the yellow metal will close above 1000 today, it will likely record the biggest quarterly gain since 1Q2008. High gold price did exert pressure on jewelry demand. Imports by India, the world’s largest buyer, probably dropped for the 5th month in September, according to Bombay Bullion Association Ltd.
Source: Oil n Gold
Preserve Your Wealth with Precious Metals
“I’m not so much interested in the return on my money
as I am the return of my capital.” --Will Rogers
In this extraordinary environment, preserving your personal wealth becomes priority one. Before you make another major financial decision, it is imperative to understand the big picture by recognizing and understanding three critical issues. First, we are in a secular bear market for financial assets (stocks and bonds). Second, the consequences of the global bailouts will likely be highly inflationary. Third, we are at a pivotal point in the long-term investment cycle. Let’s examine each of these three keys in more detail.
KEY 1: WE HAVE ENTERED A SECULAR BEAR MARKET
In a secular (long-term) bear market, stocks plunge in value, single digit price/earnings ratios become the norm, and they can stay that way for decades. The secular bear we are experiencing now actually began when the stock markets crashed in 2000-2001, but few investors noticed because in 2003 the markets were artificially propped up by massive amounts of easy money from the US Federal Reserve under Chairman Alan Greenspan. This was not a new monetary policy. Greenspan’s response to every financial “crisis” he faced starting with the stock market crash of 1987 all the way through to and past 9/11 was to pour money into the system. The system was never allowed to self- correct, allowing a variety of asset bubbles to form.
During a secular bear market such as this one, stocks habitually move down or sideways. But there are occasional and sometimes violent bear market rallies to the upside that suck in naïve investors hopeful of a quick market turnaround. The most recent example is the spring/ summer 2009 rally in which the S&P TSX, the Dow and the S&P 500 has risen between 48 and 56 percent from their March lows. Since we are just in the early to middle stages of this secular bear market for stocks, investors still have time to rebalance their portfolios into negatively correlated assets. That means selling stocks and bonds (which will decline when interest rates rise) and buying an asset class that will thrive in this uncertain market: precious metals
Cash may seem to be a safe haven but it won’t protect against rising inflation. Bonds did well in 2008 because interest rates were slashed to zero. But rates have nowhere to go but up, which means adding or keeping bonds in your portfolio is likely to produce a negative return. It is important to note that bonds no longer provide true diversification protection because stocks and bonds have become positively correlated, meaning they generally move in the same direction.
Buy and Hold Doesn’t Work In A Secular Bear Market
Following traditional bull market mantras such as ‘Buy-and-Hold’ and ‘Stay the Course’ is a recipe for disaster in a secular bear market. Because secular trends last for years, they also take years to break. The most recent examples are the1966-1982 bear market in equities which, on an inflation-adjusted basis, investors lost nearly two thirds of their value during this period. As Warren Buffett points out “During these 17 years, the stock market went exactly nowhere.”
During this current bear market, the DOW has been negative over the past ten years, the MSCI World Index is only marginally positive, yet precious metals have soared over 200 percent (Figure 1). If inflation is taken into account the stock indices would be in significant negative territory, while volatility has been extreme: many of the stocks that formed the DOW in 1999 are no longer even in existence. One more fact: if you are counting on stock dividends to help you get through this downturn, consider this: at the time of writing, companies are cutting dividends at the fastest and deepest pace in at least 50 years.
KEY 2: MASSIVE BAILOUTS WILL TRIGGER MASSIVE INFLATION
As Merrill Lynch economist David Rosenberg wryly points out, “the new growth engine for the economy is government spending.” We are in the early stages of a global government spending spree of unprecedented proportions which, coupled with zero percent interest and extraordinary money supply growth, will be hugely inflationary. Financial assets will continue to lose purchasing power in this kind of environment, but gold and precious metals will hold theirs because they are a proven hedge against an investor’s two worst enemies — inflation and economic turmoil.
In recent years, the US money supply has been growing at an alarming rate. In 2008, despite a slowdown in lending and credit, money supply still grew dramatically with M3 (the broadest measure of money supply) increasing at about 11 percent, as Figure 2 shows. In 2009 the money supply is still growing at approximately 9 percent on an annualized basis. Over the long term, M3 increases have been the best leading indicators of future increases in the price of goods and services.
Most people think of inflation as a rise in the price of goods and services but in actuality price rises are the effect, not the cause, of inflation. As famed economist Milton Friedman pointed out many years ago, “inflation is always and everywhere the result of an increase in the money supply”.
Precious metals are the only currency to own when central bank printing presses are debasing global currencies at unprecedented rates. Because they are a proven store of value, precious metals are likely to be the only asset class that will preserve the purchasing power of your savings as we enter into a prolonged period of ‘–flation’: deflation, stagflation or inflation (one of the latter two being much more likely).
KEY 3: RIDE THE INVESTMENT CYCLE
A buy and hold strategy might work if it weren’t for the existence of cycles that drive bull and bear markets. A good way to understand the investment cycle is to look at what is called the Dow:Gold ratio. The Dow:Gold ratio (Figure 3) calculates the number of ounces of physical gold bullion it would take to ‘purchase’ one share of the Dow Jones during any given time period. When the ratio rises, as it did in the 1920s, 1960s and 1990s, it tells us that portfolios should be overweight stocks. When the ratio slumps, as it did in the 1970s and today, it tells us that portfolios should be overweight precious metals bullion.
The last three major stock market bubbles ended with the Dow:Gold ratio above 18:1, while the last two major bear markets (1932 and 1980) ended with the ratio near 1:1 At the height of the equities bull market in 1999, the Dow:Gold ratio peaked at over 40:1. But now the current ratio is below 10:1 and falling. It is certainly not too late to increase your allocation to gold and precious metals.
Precious metals preserve wealth
Precious metals have successfully preserved wealth for thousands of years because, unlike stocks and bonds and paper currencies, they are not someone else’s promise of performance and they are not someone else’s liability. Massive credit expansion has put US debt at over $11 trillion, but if the $60 trillion in unfunded pension liabilities and Medicare obligations that the US owes its citizens, actual debt is approaching a staggering 500 percent of GDP.
America’s spiralling debt crisis is leading many experts to consider the previously unthinkable: that the US might become the next Argentina, which famously defaulted on its debt ten years ago. To learn more about the debt crisis, visit www.ChrisMartenson.com. Dr. Martenson has created a superbly researched video called the “Crash Course” which explains in layman’s terms how massive debt is destroying investors’ wealth.
Precious metals are a safe haven
In 2008, stocks lost 30-70 percent of their value, while gold increased about 5 percent in US dollars. But equally significant, in a year of record-setting volatility, gold’s volatility was reassuringly low. At its lowest point, gold was only down 14 percent and at its highest it was up 21 percent. Both Goldman Sachs and UBS see the price of gold rising, and UBS expects investment demand for gold to pull the price of silver and platinum up along with it. Citigroup is calling for gold to rise above $2,000.
Precious metals protect against depreciating dollars
Since gold and precious metals are priced and traded in US dollars, they surge in value when the US dollar declines. As trillions in new money is printed, the dollar and other currencies will fall precipitously relative to gold. In an environment where the dollar is already weak and other currencies are weaker, investors seeking to preserve and grow their wealth must understand the impact of declining currencies on their portfolios.
Figure 4 shows the Canadian and US dollars have lost approximately 84 percent of their purchasing power since 1970. The world’s other currencies have fared no better. Not coincidentally, 1971 was the year the link to the gold standard was cut. Only gold, along with its two precious metals brethren – silver and platinum – will hold their value in periods of severe deflation and inflation.
Physical bullion versus proxies
Few investors are aware of all the precious metals investment options available to them. Some precious metals investments such as futures contracts and options are better suited for speculation and a higher tolerance for risk. But certificates, pooled accounts, ETFs and mining stocks also have higher risk. Only physical, bullion stored on a fully allocated, insured basis can guarantee peace of mind because it gives the investor exclusive title to the safest and lowest risk precious metals investment of all.
For absolute security, physical bullion should always be stored in allocated and insured form. If not, investors take the risk that their bullion may be lent out without their knowledge or consent or may not be there at all. Today, buying and storing physical, allocated bullion has never been simpler. You can privately and securely purchase bars of gold, silver and platinum in large bar sizes and have them insured and stored for you at a registered LBMA vault without ever breaking the Chain of Integrity. Visit www.bmgbullionbars.com to learn more or read our BMG Special Reports on how to invest in precious metals at: www.investinpreciousmetals.ca and www.goldmyths.com
It’s time to preserve your portfolio’s purchasing power
A minimum 10 percent allocation in precious metals is considered adequate in a bull market, but a much larger allocation of 20 percent or more is suggested for protection in a secular bear market. If you have not already done so, now is the time to rethink your investment strategy and preserve your hard-earned wealth. Physical bullion will keep its value regardless of whether the economy is headed for inflation, deflation or hyperinflation.
For the first time in history, the central banks have an unlimited ability to print as much money as they need. Precious metals are the only currency that will survive intact in this environment, because while governments can print infinite amounts of money, they cannot “print” more precious metals. More and more investors and institutions are turning to precious metals, because this secular bear market is expected to last for many years, eating away at investors’ hopes and dreams and portfolios along the way. Don’t let your portfolio be one of them. Now is the time to make an investment in your future, because the future is precious metals bullion
Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a cost-effective, convenient way to purchase and store physical bullion. Widely recognized in North America as a bullion expert, Barisheff is an author, speaker and financial commentator on bullion and current market trends. For more information on Bullion Management Group Inc., BMG BullionFund and BMG BullionBars visit: www.bmginc.ca.
Commodity Prices Remain Soft in Asia Monday
Although still trading above 65, crude oil’s near-term outlook remains weak as investors worry about energy consumption. Decline in stock prices in Asia market and rebound in USD exert additional pressure on commodities. Others in the energy complex extend further to the downside with RBOB gasoline and distillate trading at 1.61 and 1.67 respectively.
Stock markets in Asia drop Monday in response to the worse-than-expected US durable goods orders reported last week. Moreover, strength in Japanese yen against the dollar also weighs on Japanese stocks. The Nikkei 225 Stock Average slips -2.7% to 9985 as exports will be seriously affected by a stronger yen. Japanese yen rises to 88.5 against the dollar, the highest level in 8 months amid speculations that the Japanese government will not intervene appreciation on yen. Last week, Finance Minister Hirohisa Fujii said that he did not support a weak yen. Australia’s S&P/ASX 200 Index loses more than -1% while S. Korea’s KOSPI Index fell -0.8%.The MSCI Asia Pacific Index slides -1.7%.
Gold and other precious metals move sideways in Asia session. Although USD plunges against Japanese yen, it rebounds against other currencies. The greenback rises to 2-week high at 1.457 against euro and 0.86 against Australian dollar. Against British pound, the dollar surges to 1.579, a level not seen since May.
We have a light calendar today. Germany’s CPI probably contracted -0.2% mom in September after rising +0.2% a month ago. Subdued inflationary pressure may weigh on gold. Both ECB President Trichet and BOC Governor Carney will speak later today. We expect both of them will acknowledge recent positive development in the economy. However, recovery at current pace is not sufficient to call for an exit of easing monetary policies.
Commitments of Traders
- Crude Oil: Net speculative long positions jumped to 62216 contracts, the highest level since the first week of January 2009. After 3 consecutive weekly increases, we expect to see pullback in net long next week amid long liquidations as well as sharp fall in crude oil price
- Natural Gas: Net shorts dropped to 163.8K contracts as natural gas price rose during the week. Although gas price has risen strongly in contrast with others in the energy complex, we believe the strength is premature as inventory is approaching the record high level and there’s no concrete evidence in demand recovery
- Gold: Net speculative long positions rose for the 5th consecutive week and made a new record high at 236.7K last week. However, we saw the pace of increase has moderated and the stretched position has made gold price vulnerable for correction
- Silver: Similar to gold, net speculative long positions for silver rallied above 47K contracts. Our view that ‘silver’s outperformance among precious metals may cause a more serious price correction’ began to materialize as silver price has fallen more severely than gold in the current reversal
- Platinum: Net long positions soared to a new record level of 18.2K. Strong auto sales data in August also revived investors’ confidence on PGMs. However, renewed pessimism that September auto sales will get hammered after the ‘cash for clunkers’ program should weigh on the white metal
Source: Oil n Gold Report
Technical Rebounds on Commodities May Not End Reversal
Crude oil price recovers Friday after 2 days’ selloff of -8%. Currently trading at 66.35, WTI crude may have the risk of breaking 65 and testing 60 if there’s no supportive news/data in the sector. Oil products also rebound but these are more of technical rebounds. On the contrary, natural gas continues to rise higher after the +10.6% gain over the past 3 days.
While Asian stocks declined in sympathy with US equity markets, stocks in Europe rebound with UK’s FTSE 100 Index climbing +0.56%, Germany’s DAX adding +0.17% and France’s CAC 40 gaining +0.16%. Earlier in Asia, the MSCI Asia Pacific Index dropped -0.7%. In Japan, the Nikkei 225 Stock Average slid -2.6% as Nomura, the biggest securities firm in the country, announced a record $5.6B share offering.
Natural gas storage rose 67 bcf to 3525 bcf in the week ended September 18. The increase was inline with market expectation. However, should supplies rise in similar amount next week, this would bring total storage to a fresh high after a record of 3545 bcf in November 2007.
However, natural gas price has been soaring in the past few days as investors speculate demand will increase as winter approaches. At the same time, the market also concern that the number of rig counts will not be sufficient to meet demand in coming cold weather. We actually do not believe this would be case. Although the number of rigs has fallen more than +50% from a peak of 1606 in September 2008, utilization rate of the remaining rigs has risen. Moreover, weather forecasts show that winter this year will not be as cold as that in previous years.
Gold price rebounds after plummeting to as low as 991.3 Thursday. However, price remains pressured below 1000. Silver extends weakness and is at risk of testing 16 in the near-term. Currently trading at 16.5, the benchmark contract for silver will probably record the first weekly decline after 4 consecutive weekly rises.
Platinum price dropped briefly below 1300 earlier today but then bounced back. Worries about weak auto data in September, together with liquidation of long futures positions, may put price under pressure. Auto consultancy forecast that US sales might have declined to 9.2M units on annualized rate, the level not seen since February 2009, in September after the ‘cash for clunkers’ program. In august, sales jumped +25% mom and +3.9% yoy to 14.09M units as the government’s rebate program spurred demand.
Source: Oil n Gold
Platinum’s Strength to be Boosted by Better Auto Sector Outlook
Platinum price rebounds to 1335 in European morning after plunging for 3 consecutive days. Technically, platinum’s outlook has turned more bullish after breaking the resistance of 1300 on September 11. That resistance level has now become support!
Similar to gold and silver, investment demand in platinum has been strong in recently months. According to CFTC, net speculative long positions in platinum futures have risen to a record high of 16521 contracts in the week ended September 15. According to ETF Securities, total platinum held by custodian has reached 355M oz, the highest level in more than a year, as of September 21. We worry that price will correct should investors sell what they have bought. In fact, such risk is higher in platinum than in gold. Investment demand in platinum is mostly by hedge funds and metal speculators who look for short-term profits as platinum does not possess the same safe haven appeal as gold.
However, we believe the improved demand/supply outlook in platinum should lend support to price in the medium- to long- term.
Auto-catalyst contributes 50% of demand for platinum. Therefore, outlook in auto sector is critical for platinum. After the disastrous first quarter, auto production and sales have started to recover in recent months with US’ recovery the most prominent. In Europe, production has also recovered after making a low in 1Q09. However, the risk is that the rebound may not continue as the government’s stimulus program ends. In fact, Europe is the most critical region affecting platinum. In 2008, Europe contributed 38% of world platinum demand and almost 40% of world’s auto production.
Gold price rebounds +1.3% to 1018 as USD resumes the decline. Against the euro, the greenback plunges to 1.48, the highest level since September 21. Against NZD, the dollar slides -1.1% after New Zealand surprisingly recorded current account surplus of NZD 0.12B in 2Q09.
Crude oil price also regains the 70 level amid strength in stock markets. In Asia, the MSCI Asia Pacific Index excluding Japan added +1% as the Asian Development Bank upgraded its economic forecasts in Asia to +3.9% in 2009, compared with a growth of +3.4% projected in March. In 2010, the growth projection is likewise upgraded to 6.4% from 6.0%. China is still expected to record the strongest growth as led by ‘aggressive monetary easing and the massive fiscal stimulus package’ by the Government. The nation’s economy is expected to grow by 8.2% in 2009 and 8.9% in 2010, up from the March forecast of 7% and 8% respectively.
In the UK, the FTSE 100 Index gains -1% to 5183. Germany’s DAX and France’s CAC 40 climb +1.4% and +1% respectively to 5751 and 3850.
Source: Oil N Gold Report
Crude Oil Retreats – Investors Need Evidence on Demand
Crude oil price trades narrowly with a soft tone in Asia Monday. Although we have received some stronger-than-expected economic data and the global environment seems to have turned more positive, all these factors have been priced in. Investors need evidence from the energy market to show that oil demand is recovery.
However, this may not be easy in September and October. Normally, September to October is the transitional period as the peak gasoline consumption period (driving season) has just passed while heating oil consumption remains sluggish (winter has not arrived yet). Refinery utilization is going to decline in coming weeks and crude inventory should increase. We expect oil price to trade lower from current price level until fresh supportive news is received.
Gold retreats to as low as 1000.5 as profit-taking continues and the dollar recovers after plunging to 1-year low against the euro last week. IMF’s executive board approved gold sales of 403.3 metric tons and stressed that the Fund will conduct the sales in a manner that does not disrupt the international gold market.
This is not new news as the IMF has announced its plan to sell gold and the amount has been set since April 2008. However, we do not rule out the possibility that the confirmation of sales would be used by some investors as an excuse to push gold lower.
According the IMF, any gold sales on the market would be ‘phased over time’ and in accordance with the Central Bank Gold Agreement. ‘Under this agreement, which was renewed in August, the participants announced ceilings on total sales of 400 tons annually, and 2,000 tons in total during the five years starting on September 27, 2009, and noted that the Fund’s sales can be accommodated under these ceilings’.
We have a light economic calendar today with market holiday in Japan. In US session, a report will probably show that leading indicators have risen for the 5th consecutive to 0.7% in August, after a gain of 0.6% a month ago, as driven by higher stock prices, supplier deliveries and building permits.
Commitments of Traders
- Crude Oil: Net speculative long positions rose to 45557 contracts, the highest level since June 2009. Open interest has also surged to 1.197M, representing an icrease of 19K and 1.17M contracts on weekly and monthly basis respectively. We expect pullback will be seen in the coming week as traders take profits and crude oil price has reached upper bound of recent trading range
- Natural Gas: Net shorts increased to 173.9K contracts despite jumps in natural gas price. As gas facilities have approached full storage but inventory continues to rise, we worry thst gas price will fall sharply in coming weeks
- Gold: Net speculative long positions made another record high at 235.6K last week. Gold price’s retreat after rising to1025.8 due to long liquidation may lead to reduction in net long positions in the coming week
- Silver: Net speculative long positions for silver rallied above 46.5K contracts. Silver’s outperformance among precious metals may cause a more serious price correction
- Platinum: Net long positions soared to a new record level of 16.5K as driven by broad-based rally in precious metal complex. Strong auto sales data in August also revived investors’ confidence on PGMs
Weekly Fundamental Outlook for Energies and Metals – Crude’s Rally Derailed from Fundamentals Again
Strength in stock markets and decline in USD were the major reasons for the rises in commodities. In the US, Dow Jones Industrial Average climbed +2.2% to settle at 9820 while S&P 500 Index surged +2.6% to 1068.3 as driven by better-than-expected housing market (housing starts), employment situation (jobless claims) and improvements in manufacturing activities (Empire State and Philly Fed Index).
The dollar weakened further with every rebound being treated an opportunity to sell as investors’ risk appetite increases. In the coming week, the FOMC meeting will be market’s focus. While the Fed will likely announce to keep its policy rate at 0-0.25% for an extended period of time, it may talk more about plans for exiting from the current stimulus policies.
Crude Oil
Crude oil price retreated to -0.6% to settle 72.04 Friday, the second consecutive day of fall as USD recovered after substantially weakened against major currencies in the past week. On weekly basis, the October contract reached 73.16 the highest and gained +4%. Recent rally in crude oil has been determined by movements in USD and stock markets, rather than fundamentals on the energy market.
US crude inventory declined -4.73 mmb, compared with consensus of -2.3 mmb, to 332.8 mmb in the week ended September 11. Although the draw was much higher than market anticipation, it was driven by robust refinery runs (Refinery runs declined slightly but remained strong at 86.9% of capacity) and reduction in US imports, rather than improvement in demand. In fact, weak demand has been indicated in higher-than-expected increase in gasoline and distillate stockpiles. Gasoline stockpile rose +0.55 mmb to 207.7 mmb while distillate stockpile gained +2.24 mmb to 167.8 mmb, the highest level since 1983.High refinery utilization but weak consumption contributed to the surge in fuel inventories.
Normally, refiners increase gasoline production ahead of and during driving season and then switch to heating oil production after the peak season. However, as distillate inventory remains at sky-high level, the transition will be delayed this year.
Weakness in distillate demand has been linked to industrial production. Although industrial production has picked up in July and August, it remains in multi-year low level. This is quite similar in the case for distillate.
All of EIA, IEA and OPEC’s September reports generally depicted a more optimistic outlook on global energy demand. However, a closer look at the supply side suggests that output growth will continue to exceed demand growth modestly in 2010. On average, the anticipated increase in demand was +0.91M bpd in 2010 from 2009 while total growth in non-OPEC supply and OPEC NGLs will be around +1.07M bpd. This means that there’s no need for any more growth in OPEC’s production in the coming year. This also suggests that although OPEC did not change production at September’s meeting, it may need to announce cuts in coming months.
Natural Gas
Natural gas rose +9.3% to 3.78 Friday although fundamentals in gas market remained weak. The futures climbed +28% this week, the biggest increase since the week ended October 20, 2006. We believe this was mainly technical rebound and gas price should continue to trade with high volatility.
Gas storage rose +66 bcf to 3458 bcf in the week ended September 11. Although the increase was less than market expectation of +80 bcf and the surplus to the 5-year average also have declined to 16% from 17% in the prior week, months of substantial increase in gas have made total inventory almost reach the maximum level in 2008.
Fundamentals remain weak in natural gas. Compared with the same period in previous years, storage of above 3450 bcf has been rare. There are still more weeks until the end of traditional injection season and almost 2 months away from the first winter draw, it’s hard to tell how the huge inventory will be disposed. In the current situation, we do not see any reason for gas price to strengthen further.
According to Baker Hughes, the number of gas rigs has risen 6 units to 705 units in the week ended September 18. Rebound in gas price probably encouraged production.
Precious Metals
The precious metal complex lost ground as USD rebounded from 1-year low against the euro. The benchmark contracts for gold, silver and platinum dropped -0.3%, -1.25 and -0.2% to 1010.3, 17.07 and 1338.2 respectively Friday. However, on weekly basis, the metals continued rising +0.4%, +2.2% and +1.4% correspondingly.
Gold price managed to close above 1000 for 6 consecutive days. We believe the strength was mainly driven by the sharp fall in dollar. During the period (Sep 11-Sep 18), the greenback has dipped -1% against the euro. In fact, the dollar index has already plunged -2.2%, since the beginning of the month.
In the coming week, we believe the yellow metal will consolidate with a range of 1000-1033.9 mainly due to profit-taking. Net speculative long positions made another record high of 235.6K contracts in the week ended September 15 after rising to 224.7K contracts in the prior week. Long liquidation is imminent in the short-term and this will inescapably drag gold price lower.
Inflation fears remerged as both of US’ CPI and PPI beat market expectation. The worry will linger for some time as global economic outlook improves. This, together with lower interest rates, should lend further support to the yellow metal in the medium- to long-term.
Silver’s outperformance over gold will likely cause a heavier correction in the white metal
Platinum has the best fundamental outlook within the complex. Signs of recovery in auto sector, continued robustness in investment demand as well as increase in jewelry demand in China will like push price higher.
Base Metals
Strong macro-economic environment continued to support base metals although, in the near-term, pullbacks will be seen as driven by stock builds in exchanges and reduction in China imports.
LME copper for 3-month delivery slid -3.3% to close at 6175 Friday. Over the week, the benchmark contract dropped in 3 out of 5 days and ended up at a loss of -1.2%. Copper inventory at LME warehouse has risen +2.9% to 327.7K metric tons last week. Inventory at the Shanghai Futures Exchange (SHFE) also soared +7% over the past week. These triggered concerns about demand as China, the world’s growth driver seemed to have halted stockpiling.
Recovery in USD Pressures Commodity Prices in European Morning
Commodity prices drop in European morning as the dollar recovers after plunging for several days. In particular, the pound sinks against the dollar and euro after Lloyds Banking Group was barred from exiting the Government’s debt insurance program. Crude oil slides below 72 and is currently trading at 71.8. Heating oil and RBOB gasoline also retreat while natural gas rebounds to 3.55, paring the -8% loss made Thursday.
According a stress test done by the Financial Services Authority, Lloyds Banking Groups would have to to take part in the Government Asset Protection Scheme (GAPS). In March, the Group has agreed to puit 260N pounds of toxic loans into the scheme. However, the latest data showed that it would not be allowed to exit from the program unless it raises new capitals. The news triggers concerns about the banking system, not only in the UK but also across the board.
USD rises against major currencies, partly because investors seek safe haven and partly due to consolidation after severe decline. Against the pound and euro, USD rises +0.7% to 1.6354 and +0.3% o 1.465 respectively.
Gold price initially plummeted to 1009.2 but buying interest was then seen above 1000. Currently trading at 1015, the benchmark contract for the yellow metal will likely rise for the 5th consecutive week. However, resistance below 1033.9, record high made in March 2008, is strong and thus gold should gyrate within a range of 1000 and 1033.9 in the near term. Silver price plummets for the second consecutive day after making a fresh 2009 high at 17.69 Thursday. Over the week, silver will probably record gain of +4%, outperforming the gold’s rally of less than +1%.
Copper price extends weakness to 6280 in European morning as inventory at the LME warehouse has risen to 327.7K metric tons, the highest since May. Others in the base metal complex also fall. Lead decline more than -4% to 2175 while both zinc and nickel also slide almost -2%.
Rebounds in Equity Markets Boosted Commodity Prices
Despite weakness in Asian session, crude oil price recovered in NY session amid rebound in stock market and renewed selling in USD. The October contract slid -0.6% to 68.86. Concerning others in the energy complex, heating oil stayed flat at 1.74 while RBOB gasoline lost -1% to 1.74. Natural gas rebound +11% to 3.297 after falling -9% last Friday. Gas price should continue to trade with high volatility.
US stock markets opened lower following a weak Asian session Monday. However, buying interest emerged again and S&P 500 climbed +0.6% to settle at 1049.34, the highest level in almost a year. Dow Jones Industrial Average also gained +0.2% to 9627. Worries about US-China trade protectionism mitigated after US President Obama said ‘we are not going to see a trade war’.
Today in Asia, equity markets have little change with the MSCI Asia Pacific Index staying flat while Japan’s Nikkei 225 Stock Average adding +0.1%. Crude oil price trades narrowly around 68.5.
USD initially rebounded but was then under pressure again. The greenback lost -0.6% and set another 9-month low against the euro after the EU’s comment European’s economy is coming out of recession:’ The improved economic outlook reflects external conditions being increasingly favourable. Recent data for trade and industrial production, as well as business and consumer confidence, are generally encouraging. The resilient private and public consumption and advancements in the inventory cycle will also support growth in Europe’. The Commission anticipated the region will return to growth in the third quarter with GDP of +0.2% and +0.1% in 3Q09 and 4Q09 respectively.
It’s hard to tell with a day’s data whether risk appetite has returned. In fact, both AUD and CAD dropped against the dollar yesterday amid decline in metal prices.
Gold rebounded after falling to as low as 994.4 yesterday. The yellow metal managed to close above 1000 for a second day. However the US-China trade dispute evolve will have impact on gold’s outlook. If the tension between the 2 large trading nations is escalates and the issue is translated into a full-blown trade war, demand for safe investments will drive capitals to USD and hence is negative for gold. However, we believe the possibility for this is low. First, China’s tire export to the US is only around 0.08% of its total exports, it does not have real impact to the nation’s economy after imposition of tariffs. The Chinese government will not want to lose US as its big market.
Platinum price has been trading soft since beginning of the week after strong rally last week. However, momentum remains strong and recent rise should resume after consolidation. Labor actions in South Africa have been resolved for now as the National Union of Mineworkers had agreed to a 1 year wage deal with Anglo Platinum. We are impressed as platinum stayed firm even after the issue has been settled. This was probably due to improved confidence in global auto market.
