The Weekly Market Commentary from DGCX is providing a snapshot of what’s happening in the energy, precious metal and currency futures markets.
In the final week of October, the economic data may have a little trouble keeping market attention as the November 2 – 3 FOMC meeting nears. None of it is likely to sway opinion that further easing in policy is on the way in the form of large-scale asset purchases, but should the numbers on housing and consumer confidence be stronger than expected, it will add an element of uncertainty.
For most financial markets, the data on the housing market will probably dominate the week with existing homes set for release on Monday and sales of new single-family homes on Wednesday. Home prices data includes the S&P/Case-Shiller Home Price Index and the FHFA House Price Index on Tuesday.
Consumer confidence is struggling to regain ground in the last few months. The onset of the election season with its attendant heightening of uncertainties in regard to the future will make it difficult to see any improvement in overall conditions. The Conference Boards Consumer Confidence Index is due on Tuesday, and the final Reuters/University of Michigan Consumer Sentiment Index is due on Friday.
December Crude opened at $81.84 ranging $79.80 – 83.92, in a fairly tight correlation with the S&P. Crude peaked on Monday at $83.92, spent Tuesday on the slide with a brief look under the psychological $80.00 level before recovering to $82.50 in late NY trade on Wednesday. The absence of any significant tropical storms/hurricanes has taken away some support and most rallies have been seen as reactions to poor US data. Technically traders are eyeing the 200 day moving average which is currently around $81.20 which the market has been trading either side of over the last few sessions and sustained closures below will signal a sharper move towards the low $70׳s as seen in August. Wednesday׳s US Department of Energy׳s crude inventories were below expectations for the week ending 15 Oct with a build of just 670,000 barrels to 361.20 million barrels. This week the outlook for crude prices is mildly bullish with a break back through $82.56 opening the way to $84.15 / 20, but a move down through $80.30 targets a move to $78.30 / 35.
Gold is corrected lower this week to what will be its first weekly decline since the start of September and its largest weekly drop since May, having reached an all-time high of $1386.90 on October 14th. Market talk speculates gold׳s pullback is due in part to the general dollar strength seen recently. On Tuesday, gold shed around 2.6% in its largest daily drop since July. This plummet came on the back of China׳s surprise rate hike, where China announced an interest rate rise of 25bps. On the supply side, the large Russian miner Polyus predicted a lower output than first forecast. However, this was overshadowed by reports from Newcrest Mining having bested their prior quarterly output by 148,000 ounces and DrdGold reporting a quarterly increase of 6%. The increase in supply can only benefit the bears. Focus turns toward the G20 meeting in South Korea, where some direction may be garnered. A survey of 20 analysts saw 50% predicting a further fall in Gold, with 35% thinking prices will rise. At the time of writing, Gold was down $46.6 in weekly terms.
Silver has fallen on a weekly basis for the first time in six weeks. Like gold, the downside was greatly plumbed as it looks to post the largest loss since the end of June, coming off a record high of $24.89 on October 14th. Historically, silver demand comes from fabrication, for example its use in photography, which has been steadily declining. However, in the medium-term, demand is expected to increase on the use of silver in investment, with particular emphasis on the growth of silver ETFs. Also, analysts see the potential for greater growth in the production of electrical and electronic goods, particularly semi-conductors, and also the rise of nano- technology. Thus the outlook for the metal is encouraging, even if industrial demand fails to pickup. During silver׳s previous parabolic phase, we saw an appreciation of 732.5% in just over a year. A similar increase from the current price would suggest a future parabolic top of $200. Similar targets have been extrapolated using analyses of the gold-silver ratio. Many analysts believe silver׳s run is yet to start. At the time of writing, silver trades at $23.23.
