Base Metals Jump on USD Weakness. JP Morgan Seeks to Launch Copper ETF

ONG Focus | Insights | Written by Oil N' Gold | Mon Oct 25 10 07:21 ET

Strength in commodities continued in European session as weakness in USD raised the appeal of these assets. Currently trading at 82.6, the front-month contract of WTI crude oil surged to 82.99, the highest level in 4 days, as risk appetite increased amid expectations that the Fed will announce new easing measures to revive the recovery. Moreover, industrial action across France causing shutdowns in 9 of 11 refineries added to worries about fuel supplies. The precious metal complex rallied with gold advancing to as high as 1249.5 and palladium jumping to a 9-year high of 620.

While USD is the ultimate driving force for oil price, there are other factors supporting the rally. As industrial actions opposing the French government's plan to raise the retirement age to 62 from 60 continue, 1/4 of France's 12 300 fuel stations faced supply disruptions. the refiners' group Union Francaise des Industries Petrolieres said that the country imported 100K tons a day from an average of 20K -25K tons in normal days. The union worried the situation will worsen as the strike will continue at least until October 28. While we believe the impact on US fuel supplies would be limited given abundant stockpiles, prolonged labor actions should unnerve the market.

Another support for oil prices is hurricane Richard. Yet, the impact should dissipate soon as the US National Hurricane Center said the hurricane weakened and was downgraded to a tropical storm and will unlikely cause any damage in Gulf's oil facilities.

Base metals remained strong with copper jumping to a 27-month high in London. Strong import data from China and JP Morgan's plan to launch physically-backed copper ETF contributed to the rally. China imported 383 523 metric tons of copper concentrate in September, up +44.05% and +21.62% on monthly and annual basis respectively. This upstaged declines in imports on unwrought copper and copper products.

Apart from ETF Securities which is planning to start ETF backed by 6 industrial metals, JP Morgan revealed that it will launch a copper ETF, backed by 'grade-A metal, not futures'. As stated in the document filed to the SEC, the shares are 'intended to provide institutional and retail investors with a simple and cost-efficient means, with minimal credit risks, of gaining investment benefits similar to those of holding physical copper'. JP Morgan hopes to start trading on NYSE 'as soon as practical'.

While it's expected that the launch of an ETF backed by aluminum would increase the demand for aluminum and hence the price, the situation may be different for copper. Copper inventory has stayed at low level and price has been rallying. Some analysts concern that further price hike after launch of a copper ETF may hammer demand.

 

Latest Analysis from this Author

Economic Calendar 11/1/10 (Sunday, 31 October 2010 14:44 ET)Weekly Fundamentals - QE2 Decisions the Key Event ... (Saturday, 30 October 2010 12:11 ET)Gold Weekly Technical Outlook (Friday, 29 October 2010 18:03 ET)Silver Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Crude Oil Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Natural Gas Weekly Technical Outlook (Friday, 29 October 2010 18:01 ET)Sentiment Sours ahead of US GDP (Friday, 29 October 2010 07:07 ET)Gold Soars as ECB Policymakers Warn about Currency... (Friday, 29 October 2010 00:39 ET)Economic Calendar 10/29/10 (Thursday, 28 October 2010 11:43 ET)Gold Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)

View the original article here

Base Metals Jump on USD Weakness. JP Morgan Seeks to Launch Copper ETF

ONG Focus | Insights | Written by Oil N' Gold | Mon Oct 25 10 07:21 ET

Strength in commodities continued in European session as weakness in USD raised the appeal of these assets. Currently trading at 82.6, the front-month contract of WTI crude oil surged to 82.99, the highest level in 4 days, as risk appetite increased amid expectations that the Fed will announce new easing measures to revive the recovery. Moreover, industrial action across France causing shutdowns in 9 of 11 refineries added to worries about fuel supplies. The precious metal complex rallied with gold advancing to as high as 1249.5 and palladium jumping to a 9-year high of 620.

While USD is the ultimate driving force for oil price, there are other factors supporting the rally. As industrial actions opposing the French government's plan to raise the retirement age to 62 from 60 continue, 1/4 of France's 12 300 fuel stations faced supply disruptions. the refiners' group Union Francaise des Industries Petrolieres said that the country imported 100K tons a day from an average of 20K -25K tons in normal days. The union worried the situation will worsen as the strike will continue at least until October 28. While we believe the impact on US fuel supplies would be limited given abundant stockpiles, prolonged labor actions should unnerve the market.

Another support for oil prices is hurricane Richard. Yet, the impact should dissipate soon as the US National Hurricane Center said the hurricane weakened and was downgraded to a tropical storm and will unlikely cause any damage in Gulf's oil facilities.

Base metals remained strong with copper jumping to a 27-month high in London. Strong import data from China and JP Morgan's plan to launch physically-backed copper ETF contributed to the rally. China imported 383 523 metric tons of copper concentrate in September, up +44.05% and +21.62% on monthly and annual basis respectively. This upstaged declines in imports on unwrought copper and copper products.

Apart from ETF Securities which is planning to start ETF backed by 6 industrial metals, JP Morgan revealed that it will launch a copper ETF, backed by 'grade-A metal, not futures'. As stated in the document filed to the SEC, the shares are 'intended to provide institutional and retail investors with a simple and cost-efficient means, with minimal credit risks, of gaining investment benefits similar to those of holding physical copper'. JP Morgan hopes to start trading on NYSE 'as soon as practical'.

While it's expected that the launch of an ETF backed by aluminum would increase the demand for aluminum and hence the price, the situation may be different for copper. Copper inventory has stayed at low level and price has been rallying. Some analysts concern that further price hike after launch of a copper ETF may hammer demand.

 

Latest Analysis from this Author

Economic Calendar 11/1/10 (Sunday, 31 October 2010 14:44 ET)Weekly Fundamentals - QE2 Decisions the Key Event ... (Saturday, 30 October 2010 12:11 ET)Gold Weekly Technical Outlook (Friday, 29 October 2010 18:03 ET)Silver Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Crude Oil Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Natural Gas Weekly Technical Outlook (Friday, 29 October 2010 18:01 ET)Sentiment Sours ahead of US GDP (Friday, 29 October 2010 07:07 ET)Gold Soars as ECB Policymakers Warn about Currency... (Friday, 29 October 2010 00:39 ET)Economic Calendar 10/29/10 (Thursday, 28 October 2010 11:43 ET)Gold Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)

View the original article here

Gold Soars as ECB Policymakers Warn about Currency War. USD Resumes Weakness

ONG Focus | Insights | Written by Oil N' Gold | Fri Oct 29 10 00:39 ET

Expectations of Fed's QE continued to dominate movements of asset prices. While it's almost certain that the Fed will announce new easing measures at the upcoming FOMC meeting, the size and the timing have spurred rigorous debates in recent days. The dollar resumed weakness yesterday as the New York Fed surveyed bond dealers' expectations of asset purchases over the next 6 months. Losses were pared later in the day but mixed economic data failed to depict a clearer outlook for Fed's move. Commodities rebounded as USD fell. The front-month contract for WTI crude oil climbed higher and settled at 82.18, up +0.29% while gold rose strongly to a 3-day high before closing at 1342.5, up +1.50%.

BOJ's decision to bring forward the next meeting to November 4-5 signaled that the Fed will very likely to announce QE2 next week. While the dollar had rebounded amid worries that the program may be smaller than previously expected, renewed selling pressure was seen after a Fed's survey. The New York Fed asked bond dealers about their expectations for the initial size of any new program of debt purchases and the time over which it would be completed. It also asked companies how often they anticipate the Fed will re-evaluate the program, and to estimate its ultimate size. Questions such as estimated changes in nominal and Treasury yields 'if the purchases were announced and completed over a 6-month period', with amounts ranging from zero, 250B, 500B and 1 trillion induced speculations that the Fed's measures may be aggressive.

On the macro front, indicators showed some improvements in economies developments. However, it fails to provide a better gauge on the Fed's move. Initial jobless claims unexpectedly plunged -21K to 434K in the week ended October 23, bringing the 4-week moving average to 453K, the lowest level in 3 months. Yet, one should caution that the reading might have been distorted by the Columbus Day holiday. Kansas City Fed manufacturing index dipped -4 points to 10 in October but both 'new orders' and 'employment' improved, to +16 and +1 respectively.

Apart from QE2, there are other factors directing gold price. 2 top ECB policymakers warned about the risks of currency wars ECB Governing Council member Mario Draghi said that 'current account imbalances are widening again, free floating currencies are suffering from (government currency interventions), divergent policies and consequent speculative tensions. The global recovery itself is at risk'. His views were shared by Axel Weber who said 'it is a well-known fact that more flexible exchange rate regimes would help redirect growth from export to stronger domestic demand' and 'Market-oriented exchange rates that reflect underlying economic fundamentals contribute to global economic stability'.

Meanwhile, the IMF said emerging economies should appreciate their currencies to ease currency tensions while the dollar is 'on the strong side' relative to US economic performance. In our opinion, there's long way to go before advanced and emerging economies resolve currency tensions and the situation is positive for gold.

Concerning dataflow, US GDP probably grew +2.2% q/q in 3Q10 after a +1.7% expansion in the prior quarter. Chicago PMI is expected to have slipped to 58 in October from 60.4 while University of Michigan Confidence revised up to 68 from 67.9 in October.

 

Latest Analysis from this Author

Economic Calendar 11/1/10 (Sunday, 31 October 2010 14:44 ET)Weekly Fundamentals - QE2 Decisions the Key Event ... (Saturday, 30 October 2010 12:11 ET)Gold Weekly Technical Outlook (Friday, 29 October 2010 18:03 ET)Silver Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Crude Oil Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Natural Gas Weekly Technical Outlook (Friday, 29 October 2010 18:01 ET)Sentiment Sours ahead of US GDP (Friday, 29 October 2010 07:07 ET)Economic Calendar 10/29/10 (Thursday, 28 October 2010 11:43 ET)Gold Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)Silver Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)

View the original article here

Gold Soars as ECB Policymakers Warn about Currency War. USD Resumes Weakness

ONG Focus | Insights | Written by Oil N' Gold | Fri Oct 29 10 00:39 ET

Expectations of Fed's QE continued to dominate movements of asset prices. While it's almost certain that the Fed will announce new easing measures at the upcoming FOMC meeting, the size and the timing have spurred rigorous debates in recent days. The dollar resumed weakness yesterday as the New York Fed surveyed bond dealers' expectations of asset purchases over the next 6 months. Losses were pared later in the day but mixed economic data failed to depict a clearer outlook for Fed's move. Commodities rebounded as USD fell. The front-month contract for WTI crude oil climbed higher and settled at 82.18, up +0.29% while gold rose strongly to a 3-day high before closing at 1342.5, up +1.50%.

BOJ's decision to bring forward the next meeting to November 4-5 signaled that the Fed will very likely to announce QE2 next week. While the dollar had rebounded amid worries that the program may be smaller than previously expected, renewed selling pressure was seen after a Fed's survey. The New York Fed asked bond dealers about their expectations for the initial size of any new program of debt purchases and the time over which it would be completed. It also asked companies how often they anticipate the Fed will re-evaluate the program, and to estimate its ultimate size. Questions such as estimated changes in nominal and Treasury yields 'if the purchases were announced and completed over a 6-month period', with amounts ranging from zero, 250B, 500B and 1 trillion induced speculations that the Fed's measures may be aggressive.

On the macro front, indicators showed some improvements in economies developments. However, it fails to provide a better gauge on the Fed's move. Initial jobless claims unexpectedly plunged -21K to 434K in the week ended October 23, bringing the 4-week moving average to 453K, the lowest level in 3 months. Yet, one should caution that the reading might have been distorted by the Columbus Day holiday. Kansas City Fed manufacturing index dipped -4 points to 10 in October but both 'new orders' and 'employment' improved, to +16 and +1 respectively.

Apart from QE2, there are other factors directing gold price. 2 top ECB policymakers warned about the risks of currency wars ECB Governing Council member Mario Draghi said that 'current account imbalances are widening again, free floating currencies are suffering from (government currency interventions), divergent policies and consequent speculative tensions. The global recovery itself is at risk'. His views were shared by Axel Weber who said 'it is a well-known fact that more flexible exchange rate regimes would help redirect growth from export to stronger domestic demand' and 'Market-oriented exchange rates that reflect underlying economic fundamentals contribute to global economic stability'.

Meanwhile, the IMF said emerging economies should appreciate their currencies to ease currency tensions while the dollar is 'on the strong side' relative to US economic performance. In our opinion, there's long way to go before advanced and emerging economies resolve currency tensions and the situation is positive for gold.

Concerning dataflow, US GDP probably grew +2.2% q/q in 3Q10 after a +1.7% expansion in the prior quarter. Chicago PMI is expected to have slipped to 58 in October from 60.4 while University of Michigan Confidence revised up to 68 from 67.9 in October.

 

Latest Analysis from this Author

Economic Calendar 11/1/10 (Sunday, 31 October 2010 14:44 ET)Weekly Fundamentals - QE2 Decisions the Key Event ... (Saturday, 30 October 2010 12:11 ET)Gold Weekly Technical Outlook (Friday, 29 October 2010 18:03 ET)Silver Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Crude Oil Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Natural Gas Weekly Technical Outlook (Friday, 29 October 2010 18:01 ET)Sentiment Sours ahead of US GDP (Friday, 29 October 2010 07:07 ET)Economic Calendar 10/29/10 (Thursday, 28 October 2010 11:43 ET)Gold Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)Silver Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)

View the original article here