23^rd July 2007

Ø                  Gold and Silver futures post decent gains for the week.

Ø                  US dollar pares further losses against major currencies - dips to an all-time low against the Euro and a 26-year high against the Sterling pound.

Precious metals rose further this week marking a third straight week of gains as strengthening crude oil prices and a deteriorating dollar buoyed investment demand for the metal. For the week, August ’07 delivery gold futures contract on DGCX tallied a gain of $15.60/troy oz or 2.34% while silver prices ended higher by 18 cents/troy oz or 1.36%.  In the currency markets, the US dollar declined across the board, reaching an all time low against the Euro and a 26-year trough against the British pound. During the week, the Exchange recorded a total volume of 12,320 contracts valued at $518.19 million (based on closing prices) in the futures segment.

Following last week’s gains, the DGCX August 2007 delivery gold futures contract opened on an enthusiastic note at $668.70/troy oz – higher by 70 cents/troy oz compared to its weekend close. After retreating to a weekly low of $662, prices soared northwards to an intraweek high of $687. The contract finally concluded for the week at $683.60/troy oz – churning in a solid gain of 2.34% or $15.60/troy oz. The DGCX Sept’07 maturity silver contract started trading at $13.07/troy oz and slipped to an intra-week low of $12.95 before rising to a high of $13.47. The contract concluded for the week at $13.38 thus logging in a gain of 18 cents or 1.36%.

In the currency market, the DGCX Sept’07 maturity Euro contract started trading on Monday at $1.3814/Euro and subsequently declined to a low of $1.3787 before soaring to an all-time high of $1.3865. The contract appreciated by 0.22% over last week’s close and settled at 1.3850/Euro. DGCX GBP contract dated Sept’07 opened at $2.0340/GBP and retreated to a low of $2.0328 before jumping to an intraweek high of $2.0570. On Friday, prices concluded at $2.0530/GBP – marking a strong gain of 1.04%. DGCX Yen futures contract maturing in September tallied a gain of 0.54% and settled at an exchange rate of $0.8309 for 100 yen. DGCX Indian Rupee futures for August appreciated by 0.30% and concluded the week at $2.4810 for 100 rupees.

The greenback reached a record low versus the Euro and the weakest in 26 years against the pound as outlook for the US economy remained largely grim. The US currency registered a sixth straight week of decline against the Euro and pound.

Ø      Existing home sales in the US slowed to an annual pace of 5.87 million last month from 5.99 million in May.

Ø      UK economic growth unexpectedly quickened in the second quarter, fueling expectations of higher interest rates as GDP increased 0.8%, compared with 0.7% in the first quarter.

Ø      The US producer price index for finished goods fell 0.2% last month following its 0.9% rise in May and against a consensus forecasts for a 0.1% increase.

Ø      Retail Sales in UK for the month of June rose by 0.2%, slightly less than the expected rise of 0.3% and against the previous rise of 0.4% in May.

World Markets in motion:

Gold and Silver futures end the week on a positive note, tallying gains of 2.34% and 1.33%respectively. Analysis and comments from some of the experts in the field are as under:

Ø      Dollar weakness: gold strength has long been the maxim of many gold market followers and indeed we seem to be in a period when the dollar continues to fall, while gold seems to be breaking out of its recent tight trading range.  Indications are that the yellow metal will now move upwards further but whether there is sufficient momentum there to breach the $700 level at this time remains to be seen. Much is said about China's huge foreign exchange overhang of some $1.3 trillion dollars, coupled with its low gold holdings - the theory being that China will bail out of the crumbling dollar and replace some of its reserves with gold which would have an enormous upwards impact on the gold price.  Analysts opine that this is an unlikely scenario as so much of China's economic performance relies on sales into the huge US market.  Bailing out of the dollar in favour of gold would have an enormous negative impact on the US, as well as on economies all around the world. As the prime driver in the rise in the dollar value of gold has been the decline in the value of the dollar, a continuing gradual depreciation in the greenback's value is likely to lead to a corresponding gradual rise in the gold price. World monetary authorities are not keen to see a collapse in dollar values nor a corresponding huge rise in the gold price as this would be hugely destabilizing for world economies.  It is not surprising therefore that there does seem to be a certain amount of monetary action to try and ensure this does not occur.  A dollar collapse is certainly not in the interests of any country which has substantial trade with the US - and that certainly includes most of the heavy hitters in the economic stakes which have the power to help mitigate a dollar decline. Fundamentals, though, continue to look good for the gold price in terms of no serious increase in production looming.  This year's latest figures suggest perhaps a tiny increase in gold output, but some form of disruption at a couple of major producers could reverse that in the second half - and mining is not always the most predictable of industries in that unforeseen technical factors can impact in a way seldom seen in other major industrial sectors. So where does one see the gold price going from here.  Should the dollar move down in value faster than anticipated, then there could be a correspondingly sharp move upwards in gold price - if only to preserve its value in terms of other reserve currencies like the Euro or the Pound Sterling.  But the recent pattern of price movement has been very much three steps forward, two back. The gold price tends to be less predictable than other commodities as there are so many interlinked factors which weigh on price performance.  The $700 breakthrough has been being predicted as imminent since the middle of last year and we're still only in the high $600s. The longer the price stays there, with the dollar remaining weak for the foreseeable future, any serious downside potential in the price would seem to become less and less likely.  But short of a major dollar collapse, the upside may be limited too to a managed rise in value rather than the huge breakout predicted by a number of gold gurus.

Ø      According to the precious metals monthly report by Scotial Mocatta,  just as it was investor and fund interest that drove silver prices up above the $8/oz level towards $15/oz, it now seems that liquidation selling has been the main driver on the downside. The early weakness in June, from which prices recovered, was on the back of widespread selling across all assets but the second sell-off does seem to have triggered more aggressive fund selling. The Silver ETF had 4,315 tonnes of Silver in it by mid-June, but the liquidation selling saw this fall to 4,238 tonnes by month end, while the net fund long position dropped from 34,697 contracts in mid-June to 27,852 contracts towards the end of the month. A lack of ongoing growth in the ETF has sent jitters through the market as the ETF is considered as a potential large source of above ground supply. Indeed it is likely to take some time for the market to get comfortable with this phenomenon. Overall the fundamentals have not changed and even with Silver prices are at the higher levels seen of late, demand seems to be inelastic enough not to suffer. The jewellery market is where Silver is most vulnerable, but even here with the margin in Silver jewellery considerably higher than in jewellery made from other precious metals, demand is unlikely to suffer for any great length of time. However with new mine production coming on stream as output in base metals rise, investors may have to absorb higher amounts of metal going forward in order to soak up the increased supply. As such investor interest will remain most important. The rebound off the late June lows now needs to hold above $12.40/oz to avoid looking vulnerable again. A break of $12.25/oz would now suggest a move down towards the $11.00/oz level. However, the sell-off seems to have over stretched on the downside and with an overall supportive fundamental environment, prices could head back into the $13- $14/oz trading zone. But much will depend on the extent to which investor interest returns after this sell off.

Xchange Communication:

The next 2-day training session for DGCX members & representatives will be held on 6^th and 7^th August 2007. Members interested to participate may call the Training Department  at +9714 3611616 or e-mail at training@dgcx.ae  

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