Since hitting a low of $33 per barrel last December, crude oil
prices have doubled recently to almost $70 per barrel amid growing
speculation of a recovery in the global economy. The rise in oil is
prompting several market participants to bet on further price increases
in the months ahead.
While the global economy may indeed have seen its worst days,
the recent run-up in oil prices appears to have little fundamental
underpinning. There is scant evidence that demand for oil products is
actually increasing. U.S. refinery capacity utilization is running at
less than 85%, well below the long-term average. Motor fuel demand has
been waning in recent weeks after spiking in late May due to what were
probably seasonal factors. On the supply side of the equation,
stockpiles of crude oil have been relentlessly expanding. According to
the U.S. Department of Energy, crude inventories have increased to 347
million barrels from 283 million barrels at the beginning of the year.
With the summer driving season about to wind down, the focus of market
participants will soon shift to heating fuel supplies. Distillate
supplies are currently running at 163 million barrels, substantially
above where they were at the start of each of the last two heating
seasons.
Once again, speculation appears to be at work in the oil
markets just as it was in the run-up to $145 per barrel last year. This
time, however, the move in crude prices is catching the attention of
regulators. The new chairman of the Commodities and Futures Trading
Commission (C.F.T.C), Gary Gensler, is seriously considering placing
trading limits on energy speculators. Last week, the C.F.T.C. began a
series of hearings on the subject, and based on the tone of the
testimony, regulation appears inevitable.
Copper
has been at the forefront of the rally in the base metals sector. The
cash quote has more than doubled from the low of $3,051/tonne to a
recent high of $6,419/tonne. Although prices have slipped by around 5%
since then, GFMS' latest analysis on the copper market suggests that
the downside potential is limited given the underlying fundamentals. On
an average annual basis, we expect higher prices each year out to 2012.
Strong Chinese consumption coupled with expectations for a
recovery outside of the country to commence late in the year has led us
to revise our projections for demand to show marginal growth for the
full year in 2009. Our forecasts for production, in contrast, remain
more or less unchanged. As a result, we have reduced our forecast of
the likely surplus for 2009 to just 245,000 tonnes from our earlier
estimate of 441,000 tonnes.
The 245,000 tonne surplus forecast for the year does not, in our
view, necessarily contradict the decline in LME inventories registered
this year-to-date as much of that material found its way into
unreported inventories, largely in China. As these inventories begin to
weigh on the local market, we would expect imports into China to fall,
resulting in LME stocks beginning to once again rise. Indeed, in our
view this has already started, with initial import data for July (which
covers both metal and products) showing a 15% m-o-m decline.
Coupled with some profit-taking by investors, this will drive a
decline in copper prices in the short-term. Nevertheless, as the trends
in supply and demand are clearly suggestive of a noteworthy improvement
thereafter, this is expected to be short lived, with funds and end user
front-running triggering a move to deficit in 2010, setting a positive
trend for the price from Q4 this year. At that stage, we would not be
surprised to see prices topping $6,500/tonne and generating a Q4
average of $6,000/tonne, resulting in a full-year figure of
$4,900/tonne.
Inevitably, the focus of the market in late July/early August
has been on the impact of investment funds. However, there has been
support from the underlying fundamentals. The tightness stems from the
shortage of concentrate. GFMS forecasts that global concentrate
production will decline by 1.6% this year following no growth in 2008.
Latest developments in spot treatment charges re•ect this situation,
and the decline in spot treatment charges is sending "bullish"
long-term signals to the copper market. In the key Chinese market, spot
TC/RCs in early August have fallen to $20/tonne (2c/lb) from $40/tonne
(4c/lb) in June and $90/tonne (9c/lb) at the beginning of the year.
Elite Global Market Intelligence, an Indian based consultancy forecasts the copper to USD 10300/tonne during end of the year 2010 due to economic recovery, shortage of supply, inadequate mine production and weakness of US dollar against Euro. Elite Global expects the another boom in commodity market.
A strong recovery in consumption coupled with slower mine
production (and by implication refined production) growth are the
architects of the 88,000 tonne deficit we forecast for 2010. In
addition to the direct impact of the improvement of the fundamentals on
prices, the swing of the market to deficit (as well as the improvements
in the wider commodities complex) is also expected to trigger
additional investor interest in the metal, which will further boost
prices. Copper cash prices are forecast to top $7,500/tonne, averaging
$6,500/tonne in 2010.
The deficit is expected to persist throughout the rest of the
forecast period, and its magnitude in fact grows in 2011 and 2012, to
121,000 tonnes and 176,000 tonnes respectively. It should be noted that
not all of the inventory reduction will take place on the LME as we
believe that there has been a build of unreported inventories within
China. Therefore our supply-demand balance projections suggest that LME
inventories will trend lower over the forecast period but may not reach
the levels of under 100,000 tonnes briefly seen in the recent bull
market.
1929 Great Depression, Then and Now Lessons From History
Early 1955 finds the American public swamped by forecasts of prosperity
and boom. Economic advisers to governments, corporations, universities,
labor unions and other groups seem to have resolved in unison to assure
the people that a depression like that of the 1930s has been banned
forever from the American scene. "Americans need not fear a
depression," they say. "Our government will carefully watch our economy
and interfere when the need arises."
According to these economists, the numerous built-in safety and
stabilization devices operated by the federal government — plus its
vast powers in the economic sphere — will avert any economic downtrend
and assure us continuous prosperity.
This reassurance from the planners of governmental intervention may
seem soothing and acceptable to many political leaders and followers.
But it is a frightening thing to the economist who recognizes in it the
denial of economics and the lessons of economic history.
EUR vs. USD formed a rectangular
pattern during July 2008 to till date and awaiting for the upside breakout at
1.44 levels. Once it breaks the 1.44 levels, US dollar will depreciate to 1.64
against euro. Due to global economic recovery, investor seeking commodities and
equities rather than invest in US dollar.
Elite Global is the world's leading Market Intelligence assisting
the Fortune 500 Companies in their Management decisions and Procurement
Professionals all over world for Planning their procurement and cost
control. Our website: http://eliteglobal.do.am
GOLD Forecast 2010
Gold
may have moved too high too soon . . . but whether or not the metal manages to
recoup and hold onto recent gains near or above the $1000 an ounce level in the
days immediately ahead . . . we are nevertheless looking for new highs (above
$1032) in the closing months of the year with gold possibly at $1200 or $1300
before the New Year.
Key One: India
I’ve
just returned from India, one of the most crucial markets for gold with a long
history and big appetite for the yellow metal. What happens next for gold
may depend most on the strength — or weakness — of Indian buying. And,
Indian buying is both price sensitive and in sync with various holidays,
festivals, and the wedding seasons.
With
current rupee-denominated prices near historic highs, many are waiting either
for a correction or evidence of staying power before returning to the market
for new purchases. And while festival and wedding-related buying is expected
later this month, the two-week period up to September 19th is considered
inauspicious for gold purchases and many potential buyers will wait until later
in the month.
If gold
can remain near $1000 for the next week or two, giving Indians a sense of
confidence that the price is not about to retreat, we can imagine stronger
buying interest sufficient to get the price moving toward its previous historic
peak and beyond into uncharted territory.
Key Two: China
Official
— but unreported — buying on behalf of the central bank and possibly the
country’s sovereign wealth fund, the China Investment Corporation, is being
joined by growing private-sector demand for both investment bars and jewelry.
Press reports
suggest that the Chinese government has adopted a new — more positive —
attitude toward private-sector buying of both gold and silver. With China
now the number one gold-mining country, it is in their interest to see a higher
gold price as long as demand can be satisfied by domestic mine production and
scrap reflows. Additionally, it has been suggested that the new pro-gold
policy is intended to channel speculative funds away from real estate and
equity investments.
The
recently announced agreement for the People’s Bank of China to purchase from
the International Monetary Fund about $50 billion in SDR-denominated,
IMF-issued interest-bearing securities has also contributed to the latest round
of dollar selling . . . and, to the extent that dollar weakness is a plus for
gold, this has also supported the early September gold rally.
Key Three: Barrick
Barrick
Gold’s smart move to buy back its gold hedge position provided a temporary
booster shot that helped propel the yellow metal through the $1000 an ounce
barrier.
If I
remember correctly, as of midyear, Barrick — the world’s largest gold-mine
producer — had about 168 tons of gold outstanding on its hedge book . . . and
would have to buy back this quantity to regain full exposure to future
gold-price moves.
Anticipating
an announcement effect, Barrick most likely accelerated its gold repurchase
program in the days leading up to the September 7th announcement and probably
paused to let the market recover from the news and prices to back off a bit
before it resumes its repurchase program. With another tranche still to
be repurchased in the months ahead, I expect Barrick to buy into price
weakness, helping to underpin the price at moments of weakness.
Key Four: Monetary Factors
Of
course, clients and readers of NicholsOnGold know that we think U.S. monetary
policy and money supply growth are the primary determinants of U.S. price
inflation, U.S. dollar performance, and the future price of gold. Last
weekend’s communique from the G20 Finance Ministers and Central Bank Governors
was a reminder that monetary stimulus is likely to stay for some time.
This — along with last week’s report from the United Nations critical of the
U.S. dollar’s roll as a global reserve asset — has pushed the dollar lower in foreign-exchange
markets to the benefit of gold.
If you
haven’t already read the full text of my speech to the 6th Annual India
International Gold Convention in Goa, India last week, I suggest you take a
look for more about gold’s supply/demand situation, important changes in
central bank gold policies, and implications of U.S. monetary policy.
