• February 4, 2012

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Bloomberg Median Forecasts

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Spot gold climbed to a fresh all-time high of $1,246.47 per troy ounce on Monday, when investors euphorically reacted to weekend news about China allowing the renminbi to become a more flexible currency. The prospect of an increase in China’s purchasing power initially sparked a broad rally across equities and commodities. Gains were pared toward the end of the day, however, following a cautious reassessment of China’s announcement. Although a flexible exchange rate is a step in the right direction, key details were left out, casting doubt over China’s willingness to let its currency appreciate to a level that could meaningfully bolster export demand in the West. Even if China allowed the renminbi to appreciate, would Chinese demand be as strong as we really expect? Would it be sustainable? I think China would have to introduce additional policies aimed at stimulating domestic growth together with its flexible exchange rate policy. This may convince the market that the country has a strong and sustainable foundation for correcting global economic imbalances. Weaker-than-expected US housing data and physical demand from Exchange Traded Funds (ETF’s) have also supported gold. Holdings in New York’s SPDR Gold Shares rose by 5.17 metric tons to a new record high of 1,313.135 metric tons as of Tuesday, while a separate report by Bloomberg showed that global holdings of the metal by ETF’s climbed 6.2 metric tons to 2,050.6 tons on the same day. The introduction of new ETF’s and physical demand from central banks is likely to continue to support the price of gold as well. ‘Fiat-currency concerns relating to the European sovereign-debt crisis and excess liquidity should be positive for gold’ this year, said Morgan Stanley in a report on Wednesday. [1] Anthony Grech, London

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Bloomberg Median Forecasts

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Natural gas traded at $4.794 per million British thermal units on Thursday morning, representing a 7.1% decline from last week’s update. Given the commodity’s robust performance, it is not surprising to see some profit taking; natural gas has outperformed most commodities over the past month, climbing over 17% over the period on speculation of a hot summer and on the view that the Gulf of Mexico oil spill will accelerate the US’ move to other forms of energy. On Wednesday natural gas rose for the first time in four days on the view that a heat wave along the US East Coast will raise demand for gas-powered electricity for air conditioning. Natural gas also rose on the back of news of a storm approaching the US Gulf Coast – a development that may disrupt gas supplies. The National Weather Service (NWS) on Wednesday revealed that a cluster of thunderstorms have extended from eastern Cuba and Jamaica to Puerto Rico and the northern Caribbean Sea. The NWS said the chance for the storm to develop further is (for the time being) moderate, however. It is important to monitor the potential for storms in the US Gulf of Mexico since the region produces around 11% of domestic gas output. Meanwhile, the US Energy Department’s weekly natural gas report is scheduled for release later today. According to Bloomberg, the report may show an 80 billion cubic feet rise in natural gas supplies last week, slightly lower than the five-year average increase of 85 billion. Gas storage gained 87 billion cubic feet to 2.543 trillion in the week ended June 11. Elsewhere, a Royal Dutch Shell executive on Thursday said that global gas demand is poised to increase by 25% over the next decade, despite uncertainty about the recovery of industrial demand. ‘Global gas demand will rise by one quarter by 2020… Of all primary sources of energy, natural gas is clearly the most attractive hydrocarbon’, said Shell’s De la Rey on Thursday. [2] Anthony Grech, London

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Bloomberg Median Forecasts

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The announcement that China would be more flexible in the valuation of the renminbi sparked a rally in July copper futures, helping the commodity gain nearly 2.4% on the week to $2.9745 per pound. The news led investors to speculate that China is preparing to allow its currency to strengthen against the US dollar, rendering copper, priced in US dollars, relatively cheaper. A rise in China’s purchasing power means the resource-hungry country could accelerate the development of its infrastructure, spurring greater demand for copper. The price of copper turned once investors realised that China wouldn’t allow the renminbi to appreciate rapidly and after questioning whether a stronger renminbi would even equate to more demand for the metal. Copper prices took a further hit on Wednesday when new home sales in the US plunged a record 32.7% in May. With an excess capacity of homes building up in the US and less building permits being issued, US demand for copper is likely to weaken over the coming months. There is a good chance that China will provide further details of its recent currency move, nevertheless, and this could provide copper with a short-term boost. Anthony Grech, London

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Bloomberg Median Forecasts

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Bloomberg Median Forecasts

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Gold traded at $1,223.50 per troy ounce on Thursday morning, just $26 dollars off its record high and up nearly 0.90% on the week, after a confluence of negative news from the eurozone and China encouraged investors to diversify into the precious metal. Fitch’s decision to downgrade Spain by one notch to AA+ late Friday and the ECB’s warning about the European banking sector facing up to €195 billion in writedowns by 2011 sparked another wave of risk aversion. This scuppered Wall Street’s brief rally last week and sent investors running back to the safety of gold and US government Treasuries. Political instability in Japan, growing geopolitical tensions on the Korean peninsula and certain Middle Eastern countries as well as data showing a bigger-than-expected slowdown in Chinese manufacturing activity in May also supported gold. Unsurprisingly, physical demand for the precious metal has remained robust in this risk-averse environment, with holdings in New York’s SPDR Gold Trust, the world’s biggest exchange-traded fund backed by bullion, rising to a record 1,268.23 metric tons on Tuesday. On the supply side, meanwhile, a report released from the Chamber of Mines of South Africa earlier this week revealed that gold production in the country declined 12.4% in the first quarter from a year earlier and dropped 15% from the fourth quarter. South Africa is the fourth biggest producer of gold behind China, Australia and the United States. It stands to reason that the price of gold may also be supported by a potential imbalance between supply and demand.
Anthony Grech, London

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Bloomberg Median Forecasts

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Gold traded at $1,212 per troy ounce on Thursday morning, representing a 3.9% increase from Friday’s low of $1166.3, when violent stock market swings encouraged traders to take profits in gold to cover margin calls in other assets. The precious metal, often considered a currency of last resort, rose to a one-week high on Wednesday afternoon, after the embattled euro slid on the back of Italy’s decision to approve a budget reduction plan and a bigger-than-expected drop in German consumer confidence. There are fears that the Italian government’s plan could slow domestic growth and add to the euro region’s woes and, as a result, investors have increased their exposure to gold in order to hedge themselves against the depreciating euro. The nationalisation of Spain’s CajaSur savings banks and escalating tensions between North and South Korea, have also contributed to gold’s rebound this week. From a fundamental perspective, gold seems to be supported by physical buying from Exchange Traded Funds as well. Holdings of the world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, rose 30.4 tons on Wednesday to a record 1,267.3 tons, the biggest one-day inflow since 12 February 2009. Meanwhile, a report from the World Gold Council (WGC) forecast ‘strong’ growth in gold demand this year thanks to an increase in investment demand and jewellery usage. According to the WGC, restocking at Western manufacturers and a strong economic expansion in China will help global gold consumption increase. The WGC also said demand for gold from India is set to grow rapidly as well, since the nation is becoming more affluent and more accustomed to gold’s high price. ‘There has been a recovery despite higher prices’ said Eily Ong, an investment research manager at the WGC. ‘The economic crisis in Europe isn’t going to be resolved in the next month or two. Investors have now strongly moved into gold as somewhere safe to store their money.’ [1]
Anthony Grech, London

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Bloomberg Median Forecasts

Commentary

Gold traded at $1,212 per troy ounce on Thursday morning, representing a 3.9% increase from Friday’s low of $1166.3, when violent stock market swings encouraged traders to take profits in gold to cover margin calls in other assets. The precious metal, often considered a currency of last resort, rose to a one-week high on Wednesday afternoon, after the embattled euro slid on the back of Italy’s decision to approve a budget reduction plan and a bigger-than-expected drop in German consumer confidence. There are fears that the Italian government’s plan could slow domestic growth and add to the euro region’s woes and, as a result, investors have increased their exposure to gold in order to hedge themselves against the depreciating euro. The nationalisation of Spain’s CajaSur savings banks and escalating tensions between North and South Korea, have also contributed to gold’s rebound this week. From a fundamental perspective, gold seems to be supported by physical buying from Exchange Traded Funds as well. Holdings of the world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, rose 30.4 tons on Wednesday to a record 1,267.3 tons, the biggest one-day inflow since 12 February 2009. Meanwhile, a report from the World Gold Council (WGC) forecast ‘strong’ growth in gold demand this year thanks to an increase in investment demand and jewellery usage. According to the WGC, restocking at Western manufacturers and a strong economic expansion in China will help global gold consumption increase. The WGC also said demand for gold from India is set to grow rapidly as well, since the nation is becoming more affluent and more accustomed to gold’s high price. ‘There has been a recovery despite higher prices’ said Eily Ong, an investment research manager at the WGC. ‘The economic crisis in Europe isn’t going to be resolved in the next month or two. Investors have now strongly moved into gold as somewhere safe to store their money.’ [1]

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Bloomberg Median Forecasts

Commentary

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