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Market Nuggets: Barclays Capital: Commodities In The Eye Of The Storm

Monday June 25, 2012 2:32 PM

Barclays Capital says commodity price declines are the steepest since the aftermath of the Lehman Brothers crisis and gains will likely remain capped by the eurozone debt crisis. However, analysts also say, “while there is little to be positive about just yet,” it may not take much for commodities to rally once they do turn the corner. “Our view is that Q3 is likely to mark a move back from the precipice, a return to the ‘muddling through’ phase of the European crisis that has tended to be positive for risk assets including commodities, and that this will be accompanied by increasing evidence that China has achieved a soft landing and that growth momentum is picking up again,” Barclays says. “Under these circumstances, we believe the recovery in commodities prices, like previous ones in the recent cycle, could prove surprisingly sharp and gain further support from the health of commodity-specific fundamentals.” Inventory trends in most major commodity markets are “long way” from signaling any collapse in fundamentals, the bank says. Institutional and retail sector outflows hit $8.2 billion in May, their largest in eight months, while hedge fund positioning in U.S. commodity futures has fallen to just 6% of total open interest, only half of its first-quarter peak, Barclays says. “In terms of positioning in individual markets, we continue to favor long positions in crude oil, copper and soybeans and are adding a short position in European distillates this month,” Barclays says. 

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nuggets: R.J. O'Brien: Copper Churning In A Range With Potential For Short

Monday June 25, 2012 11:02 AM

Covering R.J. O’Brien & Associates looks for three-months LME copper to churn in a range of $7,200 per metric ton on the downside and $7,600-$7,700 on the upside. The firm describes the red metal as “increasingly oversold.” This oversold condition, along with the re-emergence of backwardation and hopes for something “positive” from a eurozone summit later this week, could encourage some short
covering, R.J. O’Brien says. Also, the Chinese appear to be buying on the view that current prices offer good value. “The Chinese are noted for being a counter-cyclical force in many commodity markets and
copper is certainly no exception,” R.J. O’Brien says. “But the Chinese are also very price sensitive and if prices were to go above $8,000 per ton, one would expect Chinese buying to dry up virtually overnight.” As of 10:20 a.m. EDT, LME copper was $9.75, or 0.1%, lower at $7,300.25 a metric ton.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nuggets: Morgan Stanley Anticipates Central-Bank Initiatives That Will Support Gold

Monday June 25, 2012 9:48 AM

Morgan Stanley looks for gold to eventually get a boost from central-bank initiatives. Gold early last week climbed to its highest level since early May, then lost the wind in its sails following investor disappointment in action from the Federal Open Market Committee, which extended the program known as Operation Twist rather than undertaking more quantitative easing. "While gold lacks a clear near-term catalyst to bring the longs back, we still favor the prospects for precious metals in the medium term, given the continued poor reads from DM (developed-market) macro data, which we think only increase the probability of central-bank initiatives that would have positive implications for gold," Morgan Stanley says. "In particular, the platinum group metals should respond as a consequence of numerous production shutdowns."

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nuggets: Barclays: May Data Reflect Strong Demand For Aluminum In North America

Monday June 25, 2012 9:24 AM

Recently released U.S. private-sector data bode well for aluminum demand in North America, says Barclays Capital. The Aluminum Association has reported that net North American shipments, including exports, by domestic U.S. and Canadian facilities rose by 7.3% year-on-year in May, while shipments of mill products rose by 5.8% year-on-year and shipments of aluminum ingot for castings, exports and destructive uses rose by an impressive 10.5% year-on-year. Overall shipments for the year-to-date are now up 5.9% year-on-year, which Barclays says indicates that demand for aluminum products remained “healthy” midway through the second quarter in North America. This was also supported by the latest U.S. Metals Service Center Institute data, which showed U.S. service center shipments rose by 6.8% year-on-year in May and are up 5.6% year-on-year in 2012 so far. “This demonstrates that record physical premia in the U.S. for aluminum has certainly been driven by real demand dynamics, particularly from the auto and aerospace sectors, alongside the impact of inventory financing and long delivery lead times in some warehouse locations,” Barclays says.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nuggets: Commerzbank: Platinum Prices Appear To Be Below Marginal Cost Of Production In South Africa

Monday June 25, 2012 8:58 AM

Platinum prices appear to have dropped below the marginal costs of production in South Africa, which is likely to lead to mine closures, says Commerzbank. Anglo Platinum, the world’s largest platinum producer accounting for 40% of worldwide platinum mine production, envisages operating costs this fiscal year of 14,000-14,500 South African rand per ounce platinum-equivalent. “Currently, however, the price of platinum is riding at almost exactly ZAR 12,000, and it is to be feared that the operating costs will increase even further on the back of the production outages,” Commerzbank says.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nuggets: Commerzbank: Swiss Trade Data Supportive For Platinum Group Metals

Monday June 25, 2012 8:57 AM

The most recent Swiss trade statistics bode well for demand for platinum group metals, says Commerzbank. The data show that platinum and palladium exports from Switzerland, which traditionally serves as a trading hub, climbed to 5.3 and 6.8 metric tons respectively. “We are confident that the purchases by European auto manufacturers are attributable to the currently attractive prices and to fears of a tightening of supply,” Commerzbank says. “The supply problems experienced by South Africa, which accounts for 75% of global platinum mining production, are already indicated by Swiss imports from the country, which have plummeted to their lowest level since March 2010.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nuggets: New German Bonds Could Be Model For Spain, Joint Euro Bonds – BBH

Monday June 25, 2012 8:56 AM

Over the weekend, German Chancellor Angela Merkel agreed to allow the issuance of joint federal and “laender” or state bonds starting next year, which is an important act, says Brown Brothers Harriman. Details on the “Deutschland bonds” were not released, but BBH says the key is that they exist now. “Germany did not just refuse to share its balance sheet with its neighbors; it had refused to share it with its own states, which enjoy an explicit guarantee.  This agreement in Germany can be a model for the Spanish government that is trying to impose fiscal discipline to its regional governments.  It may also be somewhat suggestive of what may be necessary to have joint euro bonds,” they say.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

 

Market Nuggets: Gold May See Further Weakness Based On Technical Chart Action – United-ICAP

Monday June 25, 2012 8:47 AM

Gold prices may fall further, says Walter Zimmerman, chief technical analyst at United-ICAP. “Gold is still not acting like the $1,526.70 (an ounce) low completed a bull market correction from the $1,920.70 high. Gold continues to act as if it were still correcting lower,” he says. This activity keeps the “doors open” for a move to the $1,447 - $1,405 zone, he says, with the possibility of a fall to the $1,300 level.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

 

Market Nuggets: Indian Rupee Weakness Denting Gold Demand – HSBC

Monday June 25, 2012 8:46 AM

Demand for physical gold in India continues to be lackluster as the Indian rupee hit a record low value against the U.S. dollar, with the cross rate around 57.16, says HSBC. Gold valued in U.S. dollar terms is flat, but is up 8% in rupee terms and that is limiting bullion imports, the bank says. Citing the finance secretary of India, R.S. Gujral, HSBC says gold imports to India fell by $6.2 billion in the first two months of the fiscal year that began in April. On top of that, scrap recycling has risen versus last year. If the rupee can rebound,  that could help Indian gold demand, but HSBC analysts see continued currency weakness given the lack of a clear plan by the Indian government to improve the investment environment and the fiscal outlook.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

 

Market Nuggets: EU Summit Likely To Influence Short-Term Outlook For Gold – INTL FCStone

Monday June 25, 2012 8:43 AM

A summit of EU leaders takes place later this week and any decisions out of it could influence gold in the short-term, says Edward Meir, commodities consultant at INTL FCStone. “If the Germans are successful in warding off pleas for looser policies, downward price pressure will resume in the gold market and we could easily see prices retest the old lows of $1,525-30 (an ounce), and perhaps fall lower than that,” he says. If other proposals such as region-wide deposit insurance, joint issuance of common debt, putting bailout money to work buying sovereign bonds, and expanding the scope of the ECB’s balance sheet are enacted, “gold prices will likely recover, as implementation of these measures will involve a significant expansion of the monetary base,” Meir says.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

 

Market Nuggets: Barclays Capital Describes Mixed Picture For Gold Prices

Monday June 25, 2012 8:33 AM

Barclays Capital describes a mixed bag for gold, characterizing the macro environment and investor interest as bullish, the forex-market influence and fundamentals as bearish and the technicals as neutral. The bank lists a 2012 average price forecast of $1,716 an ounce. “Gold prices had held up well, but only temporarily, before they tumbled below $1,600/oz, a new low for the month following the Fed announcement, dollar strength and weaker-than-expected macro data,” Barclays says. “The dollar strength has proved to be a difficult hurdle for gold as it toys between safe haven and risky asset, and our FX strategists expect the dollar to strengthen further. An extension of Operation Twist has exposed prices to the downside as gold missed the opportunity to re-establish its safe-haven status. The next potential trigger to drive gold prices higher may be how fiscal policymakers intend to deal with the ‘fiscal cliff’ in early 2013, which leaves gold in the hands of the physical market in the near term.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Market Nuggets: UBS: Indian Physical Gold Demand Still Lacking But ETF Holdings Encouraging

Monday June 25, 2012 8:18 AM

Indian physical demand for gold did not pick up the slack on gold’s pullback late last week, but holdings of exchange-traded funds are encouraging, says UBS. India’s demand continues to struggle because of a weak currency, with seasonal buying not due for another two months or so. “A deeper pullback in gold prices is needed to offset rupee weakness and make prices attractive to locals--a move closer to $1,500 would do more to entice some buying,” UBS says. However, investors with longer-term investment horizons “have not rushed to the exit doors,” which is encouraging, UBS says. “Global ETFs held their ground, and some investors even took the opportunity to pick up small amounts of cheaper metal,” says the bank. Net flows last week were positive at around 480,000 ounces. “ETF investors have bought 1.29moz of gold so far in June, and the month is shaping up to be the strongest since November last year,” UBS says.

By Allen Sykora of Kitco News; asykora@kitco.com

 

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