Market Comment
Dates Avaiable
14 May 2008
12 May 2008
08 May 2008
07 May 2008
05 May 2008
25 April 2008
23 April 2008
22 April 2008
21 April 2008
17 April 2008
Fund liquidation exerts pressure on metals
Precious metals remained subdued throughout yesterday despite WTI crude oil pushing to $126 a barrel. Investor sentiment in the commodity complex remains cautious as narrowing credit spreads indicate receding global risk aversion; the iTraxx and CDX indices continue to tighten. Investors might increase portfolio exposure to equity and bond markets in the near term, which could also exert pressure on commodities. However, growing global inflation concerns (UK inflation rose above expectations, at 3%) could support precious metal investment demand in the near term.
Furthermore, the US import price index, which rose 1.8%, exceeding expectations of 1.6%. US CPI data, due to be released today, should shed more light on global inflation pressures.
In macroeconomic data releases yesterday, US retail sales for April grew 0.5% m/m against expectations of 0.2%. Advance retail sales fell 0.2% (in line with expectations). The US dollar strengthened to 1.5432 against the euro and gained 0.45% on a trade-weighted basis. Note that the strengthening dollar presents further downside risk to the commodity complex.
Gold has now broken the $870 – $890 support band but remains well supported at $849 – $858. The metal opened at $883 in Asia before holding at $877 at the London AM fix. London activity saw gold trading range-bound between $875 and $880 before plummeting to $865 at the PM fix. Fund selling pressure kept prices under pressure in New York — but a slight recovery to $869.50 was encountered at the PM close because of inflation concerns as WTI crude pushed to a new peak. We see support at $858, with $850 and $831 as near-term possibilities. Primary resistance is seen at $877, and secondary resistance at $888. A break higher might see gold test $907.
Silver ignored gold as continued fund buying interest in the physical market supported prices — lifting the metal from the day’s low of $16.53 — to close at $16.77 in New York. Support for silver is seen at $16.40, with $16.11 and $15.38 as possibilities. Primary resistance is seen at $17.13, with secondary resistance at $17.57. A break higher might see silver test $18.30.
Platinum closed softer in New York, at $2,060, which could indicate that news of an ETN are now priced into the market. Prices should remain well supported between $2,027 and $2,048. Dollar strength presents the primary downside risk to prices.
Palladium closed softer, at $436, in New York amid thin trading volumes yesterday. We see some downside potential; however, prices should be well supported between $426 and $430.
Rhodium was fixed lower — at $9,450 in New York.
ETN drives platinum price.
Platinum received a boost on Friday as a new futures exchange traded note (ETN) was launched in New York. Given that this note won't result in platinum hoarding, it shouldn't affect physical demand and supply. Therefore, although platinum rallied steeply, from around $2,020 to as high as $2,100, this might have been overdone. After the hype settled, platinum spot prices eased. However, this ETN could provide more liquidity to the platinum market and raise platinum's investment profile, which could be bullish in the long term. Platinum closed at $2,093 in New York on Friday.
In other markets, crude oil continues to rise, providing good support for precious metals on the downside. WTI crude broke through $125 on Friday. We do not foresee any major metals sell-off.
However, world equity markets are less optimistic about rising crude oil prices. All major exchanges closed down on Friday. Although markets are more optimistic about the outcome of the credit crisis, current concerns are: rising inflationary pressures, and higher interest rates. Highlights this week will be speeches by the Fed and the ECB (Bernanke and Trichet respectively). The market will want their thoughts on the inflation/growth trade-off.
Gold initially traded at $880 - $890. In London, liquidation pushed prices rapidly lower towards $870 around the PM fix. Fortunately for the yellow metal, crude oil pushed higher in New York, and, combined with a slightly weaker dollar, upward momentum returned, which saw gold close at $885. We see support at $881, with $878 and $870 as near-term possibilities. Primary resistance is seen at $889, and secondary resistance at $893. A break higher might see gold test $901.
Although silver tracked gold for most of the day, it seemed slightly more vulnerable on the downside as copper prices came under heavy selling pressure on Friday. With gold selling fast, silver also fell rapidly, which pushed silver from $17 to $16.50. Some support towards the close in New York restored silver to $16.84. Support for silver is seen at $16.65, with $16.55 and $16.30 as possibilities. Primary resistance is seen at $16.90, with secondary resistance at $17.05. A break higher might see silver test $17.30.
Palladium trade remains very erratic. Although the metal saw buying support on the back of platinum, the price subsided as the week drew to a close. Palladium closed at $440 - $7 up on Friday.
Rhodium pushed much higher on Friday - fixing at $9,470.
Mesmerized by oil
The world seems mesmerised by crude oil that keeps pushing higher. With all eyes on crude oil markets, volumes in the precious metals market remain low.
The euro weakened substantially against the dollar yesterday; it appears that interest rates and the strong euro are starting to weigh on the EU economy. The dollar is now trading well below $1.5400 against the euro. EU retail sales declined 0.4% m/m in March (forecast: an 0.2%m/m increase). Not only EU consumers are taking strain; German factory orders declined 0.6% m/m (forecast: an 0.3% increase), indicating a broad-based slowdown in the EU.
Look out for the ECB interest rate decision today. Although no rate cut is expected, a dovish tone at the policy statement could pave the way for further euro weakness. That said, we believe that the ECB would be unmoved by the latest data releases, and will act vigorously to curb inflation.
Despite euro weakness, crude oil is a pillar of support for precious metals. Amid the low trading volumes, gold and silver prices have been sticky, resisting major downward pressures so far this week. We foresee this support continue, which should somewhat offset downward pressure caused by currency moves.
After opening at $875, gold was range-bound for most of Asian trade. However, with the EU data release, and the subsequent fall in the dollar to around $1.5450, gold was bid to below $870. But resistance at $865 kicked in, and, combined with rising crude, the yellow metal managed to fight its way back to $870. We see support at $865, with $860 - $861 and $854 as near-term possibilities. Primary resistance is seen at $878, and secondary resistance at $888. A break higher might see gold test $900.
After being range-bound between $16.85 and $16.90 in early morning trade, silver followed gold lower towards $16.50 when Europe opened. On the back of gold and higher crude oil prices, silver was better supported in New York, and closed at $16.65. Support for silver is seen at $16.50, with $16.42 and $16.21 as possibilities. Primary resistance is seen at $16.85 - $16.87, with secondary resistance at $17.10 - $17.12. A break higher might see silver test $17.50.
Slower growth in Europe would be bearish news for PGM. But such news is being overshadowed by supply problems and higher crude oil prices. After trading slightly lower in the morning, platinum rose in New York yesterday. The metal managed to close at $1,958; trade remains choppy and erratic. Palladium also continues erratically, broadly tracking platinum. Despite generally more positive sentiment towards precious metals in New York, the metal closed at $420.
Rhodium fixed $5 lower - at $9,225.
Crude oil continues to light the way
It was another nervous day for precious metals as WTI crude oil surged to $122 a barrel. With little other macroeconomic news in major economies, metals edged higher.
Despite the rise in crude oil prices, the US dollar remains an important driver of the gold price; the greenback is still upbeat at this stage. Yesterday's comments by Mr Hoenig, President of the Federal Reserve Bank of Kansas City, that the Fed might need to raise interest rates to curb inflationary pressures, should provide further support to the greenback. Although the Fed targets inflation (excluding energy and food prices), it is only a matter of time before rising costs of these two components show up elsewhere in the economy. In the event that the Fed raises rates this year (which we believe unlikely), it would be bearish, not only for gold and silver, but also for PGM because consumer spending would come under more pressure.
Gold found good support despite the dollar breaking below $1.5500 against the euro. However, trade remains nervous and volumes low. The metal bounced between $872 and $880 during Asian and European trade before finally breaking above $880 - buying kicked in at this level when New York opened. Support gave way towards the close as oil slid below $122. Gold closed at $876.30. We see support at $871, with $865 and $854 as near-term possibilities. Primary resistance is seen at $882, and secondary resistance at $888. A break higher might see gold test $900.
After being bid slightly higher towards $16.85 in early morning trade, silver lost momentum when Europe opened. However, a burst of buying in New York pushed the metal rapidly from around $16.65, to $17.00. Although silver traded slightly lower towards the close, support remained around $16.80. Support for silver is seen at $16.67 - $16.70, with $16.48 and $16.20 as possibilities. Primary resistance is seen at $17.00, with secondary resistance at $17.15 - $17.19. A break higher might see silver test $17.50.
Platinum bounced back nicely from its lows of Monday, to around $1,950. As with gold, trade remains thin and volatile. There seems to be good support when platinum dips below $1,900. The metal closed at $1,955 in New York.
Palladium searched for direction between $420 and $430. Although market activity remains choppy, the metal followed platinum and gold higher in New York trade, to close at $428.
Rhodium is still well supported; it was bid slightly higher, and fixed at $9,230.
Metals to consolidate.
With last week’s busy data release schedule behind us, precious metals should look to consolidate at much lower levels this week.
On Friday last week, US non-farm payroll data came in negatively, but still better than expected. With the data showing an April jobs loss of 20,000 (forecast: 80 000), optimism about the prospect of the US economy is riding high. And although there has been a few decent data prints out of the US recently, one cannot call this trend a recovery yet. US consumers remain under pressure while capital spending, led by the housing slump, is still declining. Nevertheless, the current environment does favour US dollar strength, if only because the Fed is expected to have ceased cutting interest rates for this year.
But, in the financial system, problems remain. Interbank lending is still not functioning smoothly, as evidenced in the spread between Libor rates and official central bank target rates. For example, the US 1-month Libor spread remains at almost 70 bps, when historically it was less than 10 bps. This underlying uncertainty should provide some support to precious metals as a safe-haven investment.
Gold remained volatile in Friday. The trading range was between $850 and $856 for most of the day. The yellow metal managed to recover well from the sharp appreciation by the dollar against the euro when US markets opened as higher crude oil prices supported gold. A small rally towards the close saw gold close at $856.70. We see support at $848, with $840 and $827 as near-term possibilities. Primary resistance is seen at $861, and secondary resistance at $867. A break higher might see gold test $880.
Silver saw good support for most of the day on Friday. Although it tracked gold in Asia and Europe, buying support pushed the silver from around $16.20 to as high as $16.70 during New York trade. The metal closed at $16.60. Support for silver is seen at $16.15, with $16.00 and $15.90 as possibilities. Primary resistance is seen at $16.58, with secondary resistance at $16.76. A break higher might see silver test $17.
Although platinum and palladium traded lower last week on the back of gold, they remain well supported. The string of better-than-expected data out of the US could provide further demand support for the metals. But platinum remains volatile amid low volumes. The metal closed at $1,895 on Friday.
Palladium found decent buying support in New York, which saw the metal gaining almost $10, to close at $415.
Rhodium continues to buck the trend and continues to trend higher. On Friday, the metal fixed at $9,200.
Metals remain on the back foot.
Investor support for precious metals kept dwindling yesterday as the dollar continued its latest rally and crude oil traded lower.
The US dollar has strengthened to below $1.5700 against the euro — a far cry from the $1.6000 level through which it briefly broke on Tuesday. The latest currency movements come as German and French business confidence seems to be sliding, resulting in speculation of slower economic growth in the EU. This sentiment, combined with major US equity indices that ended in positive territory while European equities remained flat or negative, pushed the euro lower against the dollar.
Although global risk sentiment has improved recently, investors will remain wary of further credit-related turmoil. In this regard, Credit Suisse reported yesterday that credit write-downs had swelled to $5.2bn. Although more write-downs could be expected generally, it seems that markets have largely priced in these expectations.
Gold opened at $904 in Asia and once again traded fairly range-bound. Volatile conditions crept into the markets when Europe joined trading, pushing the yellow metal briefly below $900 before the AM fix. $900 proved to provide some resistance until after the PM fix when selling quickly pushed the metal towards $890 as stop-losses were triggered. Gold closed at $886.70 in New York. We see support for gold at $880, with $870 and $847 as near-term possibilities. Primary resistance is seen at $903, and secondary resistance at $917. A break higher might see gold test $940.
Silver tracked gold lower in both Europe and New York. However, the movements lower were sharper, pushing silver 2.91% down on the day to close at $16.69. Support for silver is seen at $16.54, with $16.33 and $15.80 as possibilities. Primary resistance is seen at $17.07, with secondary resistance at $17.39. A break higher might see silver test $17.92.
Platinum also came under some selling pressure as the greenback strengthened. After trading between $2,010 and $1,990 in Asia, the metal fell sharply when US markets opened, pushing towards $1,950. Once again, this level provided good support, and platinum seems comfortable trading around $1,950 for now. The metal closed at a bid of $1,961.
Palladium was on a downward slide for most of yesterday, leading the platinum and gold declines. The metal saw selling start before European markets opened and remained on the back foot for the rest of the day. The metal closed at $436 — $8 down from its opening value in Asia.
Rhodium broke the trend of precious metals and fixed higher — at $9,120.
Precious metals remained subdued yesterday as WTI crude oil climbed by 1.6% to another new record - to $119.37 a barrel. This came as the dollar shed 0.22%, to $1.6018 against the euro, following hawkish comments by an ECB official who reassured financial markets of the central bank's inflation-targeting mandate to bring Eurozone inflation down to below 2% by 2009. Higher oil prices should increase near-term inflation expectations, which might leave some room for near-term upside potential for commodities. However, continued fund liquidation amid these macroeconomic developments signals that most investors remain on the sidelines because of uncertainty in financial markets. Precious metals should remain range-bound ahead of the Fed interest rate decision due next week on April 30th.
Interest rate futures are currently pricing an 82% probability of a 25 bps Fed rate cut and an 18% probability of rates being held constant at 2.25%. Although still unlikely, the probability of the Fed rate being held constant is increasing - with markets now ruling out the likelihood of an aggressive 50 bps cut. This should inject near-term bearish sentiment into precious metals. An unchanged Fed funds rate could possibly increase the potential for further downside.
Giving further signals of downside potential for precious metals, equity index futures are pricing in near-term gains in Asia and the US, whilst the 10-year US treasury yield fell 3.4 bps - to 3.693% - indicating a marginal possibility of funds flowing away from commodities.
Gold opened at $916 in Asia before range-trading between $913 and $917 and was held at $920 at the London AM fix. Early London activity saw the yellow metal climb a further $2 on rising oil. Prices remained range-bound in New York despite the dollar gaining downside momentum against the euro, closing at $922. We see support for gold at $913, with $908 and $896 as near-term possibilities. Primary resistance is seen at $925, and secondary resistance at $931. A break higher might see gold test $942.
Silver edged higher on dollar weakness, closing at $17.72 in New York, with LME copper rising 2.1% to $8,699. Support for silver is seen at $17.47, with $17.25 and $16.79 as possibilities. Primary resistance is seen at $17.93, with secondary resistance at $18.17. A break higher might see silver test $18.63.
Platinum traded firmer - at $2,025 in New York on some fund buying following the dollar slide and surging oil prices. Platinum has found primary support at $1,992 with primary resistance at $2,052. The market remains tight but the current pressure on consumer spending might ease demand. Palladium held steady - at $455 in New York. Prices remain well supported above $451, with primary resistance at $459. Rhodium was fixed lower - at $9,110.
Turmoil clouds commodity investment
Precious metals remained under pressure yesterday following continued fund liquidation amid ongoing global financial market turbulence. Worse-than-expected financial results at Bank of America reignited US credit market crisis concerns, which saw the dollar shed a further 0.31%, to $1.5893 against the euro, and depreciating 0.506% on a trade-weighted basis against other major currencies. However, this failed to drive precious metal alternative investment demand, indicating that investors are possibly preferring to hold cash - creating a basis for this view, the 10-year US treasury yield rose marginally (1.9bps) - to 3.727% - with losses being realised in global equity markets.
Furthermore, inflation-hedge commodity investment demand failed to gain momentum as WTI crude oil prices scaled to a record high, at $117.48 a barrel, on mounting US gasoline supply deficit fears following a Nigerian supply cut-back in the wake of pipeline attacks. Higher crude oil prices should lift near-term global inflation expectations - however, near-term investment fund flows could be blocked by heightened investor risk aversion. Investors should look for more US economic signals for indications of near-term price movement. We see some near-term downside potential for precious metals.
Interest rate futures are pricing are now pricing a 94% probability of a 25 bps Fed rate cut on April 30th and a 6% probability of unchanged rates. However, the IMF holds a bearish view on Eurozone economic growth, expecting a 0.75 percentage point slow down, which could dampen the ECB's hawkish interest rate stance in future.
Gold opened at $918 in Asia, with prices easing to $915 at the London AM fix due to fund liquidation. Gold remained range-bound in London intraday activity, climbing back to $918 at the PM fix. Prices opened at $920 in New York before sliding to $914.30 on fund selling pressure. A rally above $938 should reinstate gold bullish sentiment. We see support for gold at $908, with $902 and $885 as possibilities. Primary resistance is seen at $925, and secondary resistance at $935. A break higher might see gold test $952.
Silver shadowed gold, closing softer, at $17.37 in New York, with LME copper easing further to $8,570. Support for silver is seen at $17.20, with $16.93 and $16.28 as possibilities. Primary resistance is seen at $17.85, with secondary resistance at $18.23. A break higher might see silver test $18.89.
Platinum was traded softer - at $2,009 in New York due to fund selling on increased investor risk aversion. Platinum has found primary support at $1,963 with primary resistance at $2,022. Palladium held steady - at $454 in New York. Prices remain well supported above $448, with primary resistance at $458. Rhodium was fixed higher - at $9,150 following some fund buying interest.
Fund liquidation drives metals down.
Heavy fund liquidation initiated a steep slide in precious metals on Friday as investors consolidated positions ahead of the weekend amid volatile market conditions and few economic data releases. The dollar strengthened marginally, to $1.5845 against the euro, but continued to weaken on a trade-weighted basis against other major currencies. However, metals were lifted as WTI crude oil prices climbed to a new all-time high - $116.69 a barrel - with the May contract on COMEX scaling $117 a barrel. This came hot on the heels of the US energy secretary's comments about the urgency to rebuild emergency reserves (to 90 days of import supply) following pipeline attacks in Nigeria. Oil prices should find near-term support at current levels.
Higher crude oil prices should lift near-term global inflation expectations and boost fund flows into precious metals. However, high investor risk aversion due to excess volatility may limit the pace at which funds flow into precious metals. Due to the long-term mean-reverting behaviour of commodity prices, market volatility should continue to fuel investor uncertainty, which could cap any near-term precious rallies. Oil price movements should continue to dictate short-term metal price movements. We see short- to medium-term upside potential.
Gold opened at $939 in Asia, with some fund buying lifting prices to $942 at the London AM fix. The large fund liquidation saw the yellow metal slip to $908 at the PM fix as stop losses were probably triggered below $930. Prices opened at $917 in New York before sliding to $912.30 at the afternoon close - prices rose $7 in after-market trading following the oil price surge. We see support for gold at $916, with $913 and $907 as possibilities. Primary resistance is seen at $922, and secondary resistance at $925. A break higher might see gold test $931.
Silver shadowed gold, closing softer, at $17.82 in New York, as 3-month LME copper eased further to $8,570. Support for silver is seen at $17.68, with $17.50 and $17.12 as possibilities. Primary resistance is seen at $18.06, with secondary resistance at $18.26. A break higher might see silver test $18.64.
Platinum held steady - at $2,042 in New York as fund buying continued giving near-term support to prices, investors pricing in high supply-side risk. Prices rallied to $2,077 in Asia before fund liquidation in London depressed prices to $2,033. The oil price surge initiated buying interest in New York. Global risk aversion should continue to drive near-term volatility in platinum prices. Primary support and resistance levels are at $2,022 and $2,047 respectively. Following suit, palladium held steady - at $456 in New York. Prices remain well supported above $453, with primary resistance at $458. Rhodium was fixed higher - at $9,105 thanks to fund buying interest into the PGM.
Oil re-heats metals .
Precious metals rallied yesterday as WTI crude oil climbed to a new record high of $114.93/bbl amid Russian oil supply concerns and surging Asian demand. A statement by the Nigerian president that oil output could fall 33% by 2015 due to capacity constraints from a lack of capital investment further supported the oil price rally. The dollar fell to a record low against the euro, at $1.5941, as Eurozone core inflation for March rose to 2.0% y/y, from 1.8% in February. This should lift commodity investment demand as investors search for alternative assets to hedge against the corrosive force of the weakening US currency.
US CPI for March was in line with expectations — at 0.3% m/m and 4% y/y. Initial jobless claims data for March, due today, should give further indication of the state of the US economy — which should shed more light on price direction for precious metals.
Merrill Lynch is due to announce its financial results today — the outcome will be important for investor sentiment in equity markets as it will give further indication of the severity of the credit crunch. A negative result could depress equity markets. Due to possible asset rotation between equity markets and commodities, this could lay the foundation for more fund flows into metals. Therefore, we see strong upside potential for precious metals.
Gold opened at $928 in Asia and was trading in a narrow $4 band before being held at $932 at the London AM fix. Gold rallied in London intraday activity, and closed at $945 at the PM fix. Momentum was lost in New York, closing at $945.50, with the market trading on lower volumes, as investors searched for further clues from oil price movements. We see strong near-term upside potential for gold, with primary support for gold at $937, and $931 and $918 as possibilities. Primary resistance is seen at $950, and secondary resistance at $955. A break higher might see gold test $968.
Silver shadowed gold as trading volumes picked up again; silver closed stronger, at $18.31 in New York, boosted by a 3.4% surge in 3-month LME copper to $8,720. Support for silver is seen at $18.17, with $17.87 and $17.39 as possibilities. Primary resistance is seen at $18.65, with secondary resistance at $18.83. A break higher might see silver test $19.31.
Platinum closed firmer — at $2,020 in New York as the oil price surge lifted fund buying. Prices found support, at $1,955 in Asia. Prices spiked further, as high as $2,036, upon the release of US CPI statistics. Higher-than-expected US industrial production, rising 0.3% in March m/m from a 0.7% fall in February, could support prices above $2009 in the near term. Palladium closed firmer — at $457 in New York. Prices remain well supported above $452. Rhodium was fixed higher — at $9,100.