Ø             Precious metals end sharply higher for the week

Ø              US dollar pares losses against the Euro, Sterling pound and Japanese Yen but advances against the Indian Rupee 

Precious metals prices edged higher for the week, following last week’s steep correction as overall weakness in the US dollar and rising crude oil prices buoyed investor buying. December ’07 delivery gold futures contract on DGCX added a gain of $36.40/troy oz or 4.63% while the near-term silver futures ended higher by $30.50 cents/troy oz or 2.11% for the week. In the currency markets, the US dollar plunged to a new record low against the Euro, declined to a two-and-a-half year low against the Japanese Yen & weakened against the British pound. However, the greenback managed to pare gains versus the Indian Rupee. During the week, the Exchange recorded a total volume of 17,013 contracts valued at nearly $657.13 million (based on closing prices) in the futures segment.

After concluding the previous week in red, DGCX December 2007 delivery gold futures contract opened on Monday at $791.40 /troy oz, showing a huge upward gap of $5.10 from its weekend close. Thereafter, the contract slid to an intra-week low of $776 before rising sharply to a high of $825. The contract finally summed up for the week at $822.70, recording a robust gain of $36.40/troy oz or 4.63%. The DGCX Dec’07 maturity silver contract churned in a decent gain of 30.50 cents/troy oz or 2.11% and concluded the week at $14.75/troy oz. DGCX February’08 steel rebar futures contract concluded the week at $634.60, posting a weekly gain of $4.40 or 0.7%.

In the currency market, the DGCX Dec’07 maturity Euro contract started trading on Monday at $1.4662/Euro and retreated to a low of $1.4634 before soaring to a record  high of $1.4396. The contract finally closed the week at $1.4834, logging in a gain of 1.12%. DGCX GBP contract dated Dec’07 opened at $2.0503/GBP and receded to a low of $2.0437 before jumping to a high of $2.0722. Prices finally settled for the week lower at $2.0586/GBP – registering a rise of 0.45%. DGCX Yen futures contract maturing in December strongly appreciated by 2.40% and settled at an exchange rate of $0.9270 for 100 yen. DGCX Indian Rupee futures for November declined by 0.40% and ended the week at $2.5239 for 100 rupees.

The Yen rose against all 16 most- actively traded currencies this week as spreading losses in US financial companies and real estate prompted investors to retreat from higher-yielding assets funded by loans in Japan. The yen increased to the highest level since June 2005 against the dollar on Friday.

Ø                  Japan's trade balance widened in October, slightly from September and more noticeably from a year ago. The October surplus was ¥1,073 billion, up from ¥1,051 billion in September and ¥933 in October 2006.

Ø                  The office for National Statistics said that the UK economy grew by 0.7% in the third quarter, below the previous estimate of 0.8%. Annual growth was revised down to 3.2% from 3.3%. The figures suggest that UK's period of above-trend growth is coming to an end, adding to the argument for UK interest rates to drop sooner rather than later.

Ø                  According to Labor Department data, initial unemployment claims in US fell by 11,000 to 330,000 in the week ending Nov 17. The drop was expected by Wall Street, but economists see a rising trend in new claims, pointing to easing growth in non-farm payroll employment.

Ø                  US home builders increased groundbreakings for the first time since summer in October, but the housing sector isn’t out of the woods, according to Commerce Department data. Housing starts rose last month by 3.0% to a seasonally adjusted 1.229 million annual rate, after falling 11.4% in September.

Ø                  The US economy will slow markedly in the current quarter but skirt a recession as growth steadily recovers next year, according to a survey of economists from the National Association for Business Economics. As a result, the Federal Reserve is unlikely to lower rates further. NABE members expect gross domestic product will expand at only a 1.5% annualized pace in the fourth quarter and 2.1% in the first quarter of 2008. GDP is expected to grow about 2.6% next year, according to NABE, down slightly from its previous forecast.

World Markets in motion:

Gold futures witnessed a robust rally of nearly 5% while silver futures advanced by a little more than 2% for the week. Meanwhile, the greenback pared gains against the Indian Rupee but faced a setback against the Euro, British pound and the Yen during the week. Analysis and comments from some of the experts in the field are as under:

Ø                The gold price is set to strengthen in the medium term, taking direction from soaring oil markets, as continued dollar weakness increases the likelihood of a further US rate cut by the Federal Reserve by the year-end to calm the turbulent financial sector, according to investment bank Fortis. The banking sector crisis in the US is reverberating across many sectors and this, together with the historic high nominal price for crude oil, spells a very strong mid-term outlook for gold. There is a very strong likelihood of yet another small - 25 basis points - cut by the Federal Reserve in US interest rates before the end of 2007. However, in the short term, a consolidation phase cannot be ruled out, but prices will likely remain in a range of $790 -$850 an ounce, while a dramatic drop below that level is seen highly unlikely, Fortis said. Heightened investor risk aversion has been instrumental in the rally seen at the beginning of the month, as credit market concerns, rising inflation and geopolitical tensions intensified, sparking increased investment demand for precious metals. With all these elements still on the table, gold looks positioned to attract additional investors in the medium term. A strong gold outlook favors a rally in the silver price, which usually mirrors the yellow metal’s moves. The metal is seen trading between $13.50 and $14.50 an ounce in the short term. Although the silver market is undermined by weaker supply and demand fundamentals, with a substantial global surplus, that probably won’t deter fresh investors joining the party.

Ø                The 'super cycle' that gold is currently undergoing is likely to sustain if Indian and Chinese demand continues at the same pace, says Alan Heap, MD, Citigroup Investment Research. According to Heap, the demand and supply situation in gold is extremely constrained. The current bull-run in gold has lasted for 7 years, from $255 per ounce levels in 2001, to 28-year highs of $845 reached in November. A 'super cycle' is a prolonged trend in commodity prices lasting a decade or more. Mr. Heap indicated that the US dollar, inflation and geo-political risk are fuelling fund interest in gold, which is likely to keep gold at higher levels. The super cycle would be determined by the rate at which “China can evolve into a democracy,” he said. He said that with gold already seeing an upside for the last seven years, it cannot be predicted how long this would last. If demand continues, the upside could remain for another 4-5 years. He pointed out that both India and China, the primary demand drivers, have fundamentally different economic approaches. Also, while India is resource rich, China does not have so many resources to fall back on. As far as the gold super cycle is concerned - Kamal Naqvi, director, commodities, Credit Suisse opines that there is a fundamental difference between gold and other metals like copper, which are also seeing multi-year highs is that gold is not entirely demand-supply driven, and other factors like inflation and the US economy play influence gold. Currently gold is being driven by investment demand. The gold market has seen a significant shift post-2000. Ross Norman, the director of Bullion desk said, before 2000, the demand was elastic, however, now the gold market seems entirely inelastic, as the appetite for the metal is high even as the prices move higher. On the supply-side, gold production has been falling steadily in the last five years and no new deposits have been found. Mr. Norman was of the firm view that 2008 would still remain bearish for the dollar, which means money would be pumped into gold. 

Ø                Dollar weakness is heading east to the Far East. The greenback in recent months has fallen to an all-time low against the Euro, a 26-year trough against sterling and a low against Canada’s currency unseen since the Civil War. But while it weakened against Japan’s currency during this period as well, the declines were relatively small. A 10% drop in the dollar against the Euro during the past 90 days compares with just a 3% drop versus the yen. However, this trend appears to be changing. The dollar on Wednesday fell to a low of ¥108.25. That’s a two-and-a-half year low and more than three full yen lower from Friday’s high of ¥111.34. The question now is whether the strong yen trend will continue, and if so, whether that would give scope for the dollar to start a rebound against the Euro, the Canadian dollar and others. Ian Stannard, senior foreign exchange strategist at BNP Paribas in London, thinks the answer is yes. According to him, dollar weakness is going to start becoming more targeted to certain currencies to Asian currencies like the yen, but also regional Asian currencies as well. The currencies losing if the yen keeps gaining would likely be the higher-yielding currencies, including the UK pound and the Euro, Stannard said, although he still thinks the Euro has room for a bit more strength in the short term.

Xchange Communication:

The next 2-day training session for DGCX members & representatives will be held on 5^th and 6^th December 2007. Members interested to participate may call the Training Department at +9714 3611616 or e-mail at training@dgcx.ae

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