IMM Positioning - Cyclical Currencies? No, Thanks. USD? Yes, Please!

Cyclical currencies? No, thanks. USD? Yes, please!

The latest IMM data covers the week from 19 February to 26 February.

Most cyclical currencies such as the euro and commodities were shredded last week. Investors went net short EUR again with net positioning back at levels seen around new year prior to the January rebound. For now, EUR/USD will be driven by speculation on ECB action ahead of the rate meeting on Thursday: the single currency itself should be less of an issue for the ECB given the latest weakening and we look for limited euro downside from here. However, we acknowledge that with political uncertainty elevated on either side of the Atlantic (Italian election, US budget talks) and ECB rate cut talk lingering, euro tailwinds have yet to gather and we cannot rule out investors wanting to adopt more euro shorts in the near term.

JPY positioning became slightly less stretched in a week that saw the Japanese government nominate compromise candidate Kuroda as new BoJ governor. While a shift in a much more dovish direction on the BoJ board has been under way for a while, a new governor who has forcefully argued that the BoJ has been too passive previously should allow investors to put on more shorts in the near term.

More GBP shorts were put on in a week that saw BoE minutes revive discussions of an increase in asset purchases. Sterling looks increasingly like the big loser in the FX market this year and GBP short positioning has yet to reach extreme levels.

Both AUD and CAD were discarded by speculators last week as risk appetite soured following the Italian election. However, watch out for Reserve Bank of Australia this week: the bank has recently changed its rhetoric somewhat, becoming more reluctant to ease as aggressively going forward. Also, Bank of Canada could remind investors this week that it remains one of the only majors looking to hike; CAD upside seen from here

Danske Bank
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China's SHFE to extend trade hour for Gold,Silver futures

SHFE now allows trading from 9.00am to 11.30am and from 1.30pm to 3.00pm Chinese time. The extended trading hours would close the gap between domestic and international markets.

SHANGHAI(BullionStreet): In yet another attempt to establish itself as a major gold market, China extended trading hours for SHFE gold and silver futures to close the gap between domestic and international markets.

Shanghai Futures Exchange (SHFE) has released draft rules to allow extended trading sessions for its futures contracts, with gold and silver the most likely to be chosen for the pilot scheme.

SHFE now allows trading from 9.00am to 11.30am and from 1.30pm to 3.00pm Chinese time. The extended trading hours would close the gap between domestic and international markets.

According to the draft rules, which are open to public comment, the SHFE said extended trading hours would fall outside those regular trading times.

It did not elabourate on what times the extended trading hours would be.

A lack of integration between Chinese and overseas exchanges limits the influence of China - the world’s top buyer of commodities - on international commodities prices, which therefore often fail to accurately reflect underlying Chinese demand.

The exchange currently offers nine futures contracts, including copper, aluminium, rubber, fuel oil, gold, rebar and zinc.

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Chaarat Gold to begin Gold production in H2 13

The company estimates that approximately 2.7 Mt of resource at Tulkubash at a grade of 2.06 g/t is suitable for heap leaching.

By Philip Whiterow
Chaarat Gold (LON:CGH) is to use a heap leach method of production at its Tulkubash project in the Kyrgyz Republic to reduce costs and offset higher taxes.

Originally, Charaat had planned to use the CIL method to process ore at Tulkubash, but drilling last year identified a significant amount of shallow material that is amenable to heap leaching, it said.

The switch will mean lower upfront capital costs and ongoing power costs, but will not affect the timing of first production from Tulkubash, which is still expected in the second half of 2013.

An in-fill drilling programme last year has also enabled Chaarat to increase the JORC resource slightly to 5.76mln ounces, from 5.59mln ounces, though the grade has dipped to 4.03 grams per tonne (g/t) from 4.08g/t.

Dekel Golan, Chaarat’s chief executive, said: "We have maintained the momentum towards production. Our project team has submitted designs for approval and made significant progress with permitting.

“Through our strict control of capital expenditure and the revised approach to production, the company's cost of reaching production is going to be lower than we previously estimated.

“These savings have been mitigated by the effect of the changes in the new tax regime which have a negative effect of about US$15 million on our cash flow prior to becoming net cash generative.

“The final revised requirement for working capital will be confirmed once we have completed our detailed work on the revised mine plan and operating budget.

"The board remains confident that these funds will be available to us," he said.

Chaarat had previously said it wanted to raise a working capital facility of US$20 million to cover initial mining costs.

The company estimates that approximately 2.7 Mt of resource at Tulkubash at a grade of 2.06 g/t is suitable for heap leaching.

The deposit is open towards the north where Chaarat believes “significantly more” heap leachable material may be available.

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Cypriot Parliamet Voted Down Levy Plan

ONG Focus | Insights | Written by Oil N' Gold | Tue Mar 19 13 23:52 ET

S&P 500 dropped as the Cypriot Parliament rejected the levy plan. There were 36 votes against the proposal and 19 abstentions. The Abstentions were from the President's centre right party DISY supporting a revised version of the plan. Wall Street was mixed with the DJIA adding +0.03% and the S&P 500 indices losing -0.24% during the day. In the commodity sector, crude oil prices slumped amid rejection of Cyrpus’ bailout deal. The front-month contract for WTI crude oil reversed initial gain to 94.09 and plunged -1.69% while the Brent crude contract plummeted -1.88% during the day. In the Asian session today, stocks climbed higher as led by Chinese share which rose the most in 2 weeks as driven by automakers and banks.

The Cypriot Parliament rejected the bank levy although the Eurogroup released a statement granting concessions on small deposit holders. The Eurogroup stressed that the levy on deposits is a one-off measure and small depositors would be treated differently from large depositors and “reaffirms the importance of fully guaranteeing deposits below 100.000 euro”. The rejection raised uncertainty as it is unsure when/if the bailout would be approved. This would affect the liquidity of its banking sector. In the near-term, risks for the euro is to downside.

On the dataflow, the US housing starts increased to 917K in February from an upwardly revised 910K a month ago. Building permits rose to 946K from a downwardly revised 904K in January. The market today awaits the FOMC meeting which is expected to leave the Fed funds rate and the QE measures unchanged. The BOE minutes will also be released today. UK’s jobless claims probably slipped -5K in February, improving from a -12K contraction a month ago. The 3-month ILO unemployment rate should have stayed unchanged at 7.8% in January. The Claimant count rate will also be released.

The industry-sponsored API estimated that crude inventory slipped -0.41 mmb in the week ended March 15. For fuels, gasoline gained +0.28 mmb while distillate slipped -1.3 mmb. The DOE/EIA’s official report might report that crude inventory added +2 mmb during the week. Gasoline and distillate stockpiles might have fell -2.5 mmb and -1.5 mmb respectively.

 

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Gold Weekly Technical Outlook

Gold dropped sharply last week, especially on Friday and breached 1600 level before closing at 1610.3. The development is confirmed with the view that fall from 1798.1 is still in progress. Near term outlook stays bearish as long as 1651 minor resistance holds. Current decline should target a test on 1526.7 low next.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7/1804.4 resistance zone will argue that the long term up trend is possibly resuming for a new high above 1923.7.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run

Comex Gold Continuous Contract 4 Hours Chart

Comex Gold Continuous Contract Daily Chart

Comex Gold Continuous Contract Weekly Chart

Comex Gold Continuous Contract Monthly Chart

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Sentiment Damped on Downgrade of UK's Rating and Repayment of LTRO

ONG Focus | Insights | Written by Oil N' Gold | Mon Feb 25 13 00:46 ET

Financial markets moved sideways in Asian session on Monday. The outlook this week is likely gloomy amid global economic prospect remains unclear. Moody’s announced to downgrade the UK’s triple A rating while the second tranche of LTRO repayments by Eurozone banks were less than forecast. The focus this week was Abe’s nomination of the BOJ governor. A report from the Nikkei newspaper suggested that the government is likely to nominate Asian Development Bank President Haruhiko Kuroda and Kikuo Iwata as BOJ governor and deputy governor respectively. Both of them are advocates of aggressive monetary expansion. Moreover, the US sequester is expected to begin on March 1.

Moody’s downgraded the UK sovereign rating by 1 notch from Aaa to Aa1. The rating agency stated that the country’s weak economic growth “poses an increasing challenge to the government’s fiscal consolidation efforts”. Moreover, Moody’s indicated that while the country’s "debt-servicing capacity remains very strong and very capable of withstanding further adverse economic and financial shocks, it does not at present possess the extraordinary resilience common to other AAA-rated issuers"p>

In the Eurozone, the ECB announced that 356 banks will make a repayment of 61.09B euro on February 27. This was compare with market expectations of 130B euro. The central bank began out the first LTRO in December 2011 and a second one in February 2012. It has given out over 1 trillion euro in total. A total 523 banks took 489B euro in the first round of LTROs while 529.53B euro was given out to 800 banks.

Commitments of Traders:

With the exception of heating oil, speculators were bearish towards the energy complex in the week ended February 19. Net length for crude oil futures slipped -14 957 contracts to 257 918. Net length for heating oil rose +3 853 contracts to 42 247 while that for gasoline slid -36 contracts to 94 377. Net short for natural gas soared +7447 contracts to 146 102.

With the exception of palladium, speculators were bearish towards precious metals during the week. Net length for gold future was down -23 184 contracts to 103 651 while that for silver futures fell -5 616 contracts to 26 456. For PGMs, net length for platinum dropped -1 390 contracts to 48 748 while that for palladium climbed +316 contracts to 26 200.

 

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Sentiment Remains Upbeat on Monday

ONG Focus | Insights | Written by Oil N' Gold | Mon Mar 11 13 00:26 ET

Positive market sentiment carried forward to Asian session on Monday as US’ employment data came in better than expected. Non-farm payrolls increased +236K, compared with consensus of 158K and a downwardly revised 119K in January. The jobless rate was lowered to 7.7% from 7.9% in January. The MSCI Asia Pacific Index added almost +1.0%. In the commodity sector, the front-month contract for WTI crude oil moved sideways at around 91.5 after gaining over the past 2 trading days while the equivalent Brent crude contract likely slipped for a second day as North Sea oil operation returned to normal. Concerning gold prices, the benchmark Comex contract remained clustered around 8-month low above 1550.

China CPI gained +3.2% y/y in February, up from +2.0% in January. Food prices increased +6.0% y/y while non-food prices gained +1.9% y/y. The surge to a 10-month high was mainly driven by seasonal effect, i.e. Lunar New Year. China’s trade surplus shrank to US$15.3B in February, down from US$29.1B a month ago. Exports dropped -25.6% to 139.4B while imports slipped -21.5% to 124.1B. While the trade data came in better than expected, it might have been affected by the Lunar New Year. Exports were usually lower in during the festive season as factories shut down for a week for holiday. On annual basis, exports grew +21.8% y/y while imports dropped +15.2%.

Commitments of Traders:

With the exception of natural gas, speculators were bearish towards the energy complex in the week ended March 5. Net length for crude oil futures slipped -358 contracts to 235 740. Net length for heating oil dropped -8 997 contracts to 17 724 while that for gasoline slid -4 494 contracts to 88 215. Net short for natural gas fell -3 493 contracts to 132 980.

Speculators were bearish towards precious metals during the week. Net length for gold future was down -9 012 contracts to 107 584 while that for silver futures fell -3 134 contracts to 18 603. For PGMs, net length for platinum dropped -2 246 contracts to 39 158 while that for palladium slid -230 contracts to 24 874.

 

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Weekly Fundamentals - WTI- Brent Spread Narrowed on Divergent Movements of Two Benchmarks

ONG Focus | Insights | Written by Oil N' Gold | Sat Mar 16 13 02:38 ET

Crude Oil: WTI and Brent crude moved in different direction last week with the former for April delivery adding +1.60% while the latter slipped -1.29% during the week. This has further narrowed the WTI-Brent spread to $16.7/bbl, the lowest level since mid-January, and the 1Q13 average to $19/bbl. The WTI crude contract was supported by the EIA report that Cushing inventory slipped-1.53 mmb to 49.32 mmb, a level not seen since December last year. Brent crude time-spread also slumped during the week as a result of 2 incidents. First, a crude oil loading program for April in the North Sea is expected to raise supply by +150K bpd to the highest levels since June 2012. Output is also expected to stabilize in the Buzzard field while the Elgin field would also resume operation. Second, the South Korean government is proposing to cancel tax rebate on imported crude from the EU from April 1. This would likely reduce demand for North Sea crude by Korean refineries.

In China, the report from National People’s Congress suggested that the government forecast the economy to grow +7.5% this year with M2 money supply and fixed asset investment rising +135 and +18% respectively. Despite concerns over measures to curb property prices, oil demand would remain well-supported by resilient manufacturing activities. Meanwhile, the NRDC has planned to increase the transparency and responsiveness of domestic fuel prices adjustment so as to reflect changes in international oil benchmarks more instantly. There have been proposals to remove the 4% crude price change threshold and the observation period of 22 working days. The last time the NDRC adjusted fuel prices was February when gasoline and distillate prices were raised by +3.2% and +3.4% respectively. Over the past 12 months, it has raised fuel prices 4 times and cut them 4 times.

Natural Gas: The DOE/EIA reported a -145 drop of gas storage to 1 938 bcf in the week ended March 8. Stocks were -440 bcf less than the same period last year and -198 bcf above the 5-year average of 1 814 bcf. Separately, Baker Hughes reported that the number of gas rigs added +24 units to 431 in the week ended March 15. Oil rigs stayed unchanged at 1 341 while miscellaneous rigs remained unchanged and the total number of rigs gained +24 units to 1 776. Directionally oriented combined oil, gas, and miscellaneous rigs added +14 units to 209 units while horizontal rigs climbed +1 unit to 1 131 units and vertical rigs added +9 units to 436 during the week.

Precious Metals: gold price gained last week but remained capped below 1600 at close. Although macroeconomic fundamentals should be able to drive prices higher, near-term catalysts lack in the near-term. In China, deputy Governor of the PBOC, Yi Gang, stated that the government would limit its gold holdings to 2% of total reserve amid concerns that additional buying would drive up prices and hurt consumer demand. That said, China would remain a key gold importer as its domestic production is not sufficient to meet domestic jewelry demand.

 

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Crude Oil Weekly Technical Outlook

Crude oil stayed in range below 98.24 last week. With daily MACD staying below signal line, 98.24 should be a short term top and deeper decline is in favor. Below 94.97 will confirm this case and should bring deeper pull back to 55 days EMA (now at 92.47) and below. On the upside, break of 98.24 is needed to confirm rally resumption. Otherwise, near term outlook is neutral at best.

In the bigger picture, price actions from 114.83 are viewed as a triangle consolidation pattern, no change in this view. And, such consolidation could still be in progress and Crude oil remains bounded in the converging range. Nonetheless, the pattern should be close to completion and an upside breakout should be seen soon. Above 100.42 will strongly suggest that whole rebound from 33.29 has resumed for above 114.83. And in case of another fall, strong support should be seen above 77.28 to bring rebound.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hours Chart

Nymex Crude Oil Continuous Contract Daily Chart

Nymex Crude Oil Continuous Contract Weekly Chart

Nymex Crude Oil Continuous Contract Monthly Chart

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Sentiment Improved on Italy's Bond Auction US' Discussion about Sequester

ONG Focus | Insights | Written by Oil N' Gold | Thu Feb 28 13 01:00 ET

Market sentiment improved amid a successful Italian bond auction, a proposed meeting between top Congressional leaders and President Obama on Friday about sequester and improvements in economic data. Wall Street climbed higher with the DJIA and the S&P 500 gaining +1.26% and +1.27% respectively. In the commodity sector, the front-month contract for the WTI crude oil settled largely unchanged at 92.76 while the Brent contract declined for the second consecutive day to as low as 111.65 before ending the day at 111.87, down -0.75%. Gold slipped for the first time in 3 days with the benchmark Comex contract dropping -1.23%.

In Italy, the 10-year bond auction worth of 4b euro was well-received although the yield increased more than half a percentage point to 4.83%. The Treasury also issued 2.5B euro of a 5-yaer bond at 3.59%. As the election result raised political uncertainty in the country, Silvio Berlusconi said that a stable coalition had to be formed before March 15 when the Italian parliament is scheduled to begin. According to the former premier, “if a message of stability isn't sent before then, we risk paying a very high price”. After a meeting, French President Francois Hollande and Italian center-left leader Pier Luigi Bersani released a joint statement saying that “the economic crisis and the suffering surrounding it are at this point so serious that even the European Union cannot and must not remain deaf to the clear message that emerged from the vote in Italy”.

In the US, the market is awaiting a meeting between top Congressional leaders and President Obama on measures to handle sequester, i.e. about $85 billion in spending cuts, that would begin on that day. US economic data was mixed. Durable goods orders declined -5.2% m/m in January, following a +4.6% gain a month ago. The market had anticipated a drop of -4% previously. Durable goods orders excluding transportation gained +1.9%, following a +1.3% rise in December. Pending home sales soared +4.5% m/m in January after falling -4.3% a month ago. The market had anticipated a +2% gain for the month.

Today, the initial jobless claims probably slipped -1K to 361K in the week ended February 24. GDP might have revised up to +0.6% gain in 4Q12 from previous estimate of -0.1% decline. Chicago PMI probably slipped -1.6 points to 54 in February.

 

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OPEC's Forecast on China's Demand Growth in Focus

ONG Focus | Insights | Written by Oil N' Gold | Tue Mar 12 13 06:13 ET

Crude oil price retreated in European session. As the market awaits the OPEC’s monthly oil report, we expect the cartel would acknowledge that US’ imports of OPEC’s oil have continued to decline and a key reason to the situation is the rise in US production. Although OPEC remains contributing over 35% of the US crude imports, the amount has been on the fall steadily since the second half of 2008. In terms of volume, Saudi Arabia and Venezuela take up almost 60% of US’ imports from the OPEC while Angola and Nigeria have shown sharp declines. The implication on Brent crude is that, with the US a less popular destination for exports, producers would need to compete with other (such as Dubai crude) for shipment to other countries, such as those in Asia.

The market would probably be concerned about the new forecasts of global oil demand which are traditionally the most bearish one among the 3 major oil agencies (OPEC, IEA and EIA). The focus is whether there would be a downgrade on China’s demand outlook. If there’s such a case, we would expect the OPEC to consider production cut in coming months.

In the near-term, gold’s outlook should remain damped with ETF holdings weakening further and speculative positions of CFTC futures declining last week. The SPDR Gold Trust reported that holdings have dropped to 39.76M oz, the lowest level in October 2011, as of Monday. Speculative long positions of gold futures fell to 107.58K contracts in the week ended March 5, down -28.3% since the beginning of the year. Meanwhile, retail demand has been soft since the beginning of the year with the US Mint reporting gold coin sales of 25K oz so in March.

On the dataflow, final estimate of Germany’s CPI stayed at +0.6% m/m in February. UK’s industrial production fell -2.9% y/y in January after a downwardly revised -2.1% a month ago. Manufacturing production slipped -3.0% y/y, following a -1.6% drop in December. Trade deficit narrowed to 8.2B pound in January from 8.9B pound in the prior month.

 

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