Gold and Silver Info: Commodities Climb as Ireland Eventually Seek Bailout

Thursday, November 25, 2010

Commodities Climb as Ireland Eventually Seek Bailout

ONG Focus | Insights | Written by Oil N' Gold | Mon Nov 22 10 00:08 ET

Commodities advanced after a weekly loss as risk appetite increased on Irish bailout. The front-month contract for WTI crude oil price climbed to 82.5 while the benchmark COMEX gold futures hovered around 1360. The US dollar and Japanese yen slipped in Asian session as investors sought higher-yield investments. However, rise in risky assets was not only mild, suggesting investors remained cautious about the outlook. Indeed after Irish bailout, the focus will be probably shifted Portugal. Meanwhile, Greece's trimmed growth estimate indicated debt problems in peripheral European economies remained a long-term concern.

Over the weekend, Irish Finance Minister Brian Lenihan said the country will apply for financial assistance from the European Union (EU) and International Monetary Fund (IMF) through a ‘contingent' capital fund as ‘the banks were too big a problem for the country...The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector'. While Lenihan only mentioned the package would be less than 100B euro. The media reported last week that According to the media, the program will amount to 80-100B euro for 2010-2013 assuming Ireland's deficit will reach 32% of GDP this year. The funds will probably come from a mix of the European Financial Stabilization Mechanism (loans up to 60B euro), European Financial Stability Facility (loans up to 440B), as well as the IMF which is likely one-third of any rescue package.

Fed Chairman Ben Bernanke's comments on Friday as weighed on the US dollar. The Chairman said at the ECB conference in Germany that US' inflation has declined noticeably since the business cycle peak, and further disinflation could hinder the recovery'. Defending the Fed's QE2, Bernanke said ‘insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole'.

We have a light calendar today but the focus this week will be FOMC minutes, revisions on 3Q10 GDP for the US and the UK. China will also publish final trade data for October.

Speculators showed mixed views on the energy complex in the week ended Nnovember 16, despite price correction. Net lengths for crude oil futures rose +27 884 to a record high of 171 991 contracts although WTI crude oil price slumped to as low as 82.07 from a 2-year high of 88.63 during the week. Net lengths for heating oil futures slipped -782 to 43 944 contracts while that for gasoline futures gained +7 380 to 66 883 futures. We believe the increase in gasoline bets was the aftermath of the French strike and shutdown on refinery for maintenance. Net shorts for natural gas rose for a second consecutive week to 167 750 contracts amid ample storage.

Bets declined across precious metal futures last week amid profit-taking. This is reasonable as previous rallies as driven by Fed's QE have made precious metal prices a bit stretched. Net lengths for gold futures fell -27 700 to 218 479 contracts while that for silver futures slid for a 7th week, by -4 479 to 28 104 contracts. After rising to record highs, net lengths for platinum and palladium fell -5 419 and -2 069 to 22 685 contracts and 14 781 contracts respectively.