Investors dump risky assets amid renewed concerns about sovereign default risks in European countries. In Greece, although the government's plan to reduce deficit received support from the European Commission, it is opposed by local unions, indicating difficulties in implementation of the measures.
There are signs that the worries have been spread to other European countries. Stocks and bonds in Spain, Portugal and Hungary plummet amid worries that the governments may not be able to fund the heavy debts.
The euro dives to 1.3849 against USD, a level not seen since July 2009. High-yield currencies, such as AUD and NZD, also plunge after releases of disappointing economic data.
Commodities weaken as the dollar strengthens. The benchmark contract for gold slides -0.8% to 1103 in European session, following a -0.5% dip on the previous day. In our opinion, gold should benefit in the long-run of sovereign risk concerns persist. In fact, other than these small European countries, the US and the UK are also bearing heavy budget deficits. Investors should later realize that USD is not a safe haven as the US is seeking to expand stimulus measures which will result in a bloated budget deficit of $1.6 trillion this year.
Released Tuesday, the weekly financial statement of the Eurosystem indicated one of the Eurosystem central banks purchased gold, contributing to 1M euro increase in gold and gold receivables reserve. At the same time, sales of gold were minimal (below 2 metric tons) since the start of the 3rd CBGA on September 27, indicating official demand for gold remains stable.
We continue to see capitals flowing into US PGM ETFs. As of February 2, physical holdings of platinum surged to 244.9K oz, up +14% from the prior week. Correspondingly palladium holdings were flat at 399.9K oz, possibly a pause after a 40 times increase since the launch of the ETF.
Investment in ETF helps tightening supply of the metals as it's physically backed. According to Johnson Matthey's estimates total platinum supply was 6055K oz while demand was 5915K oz in 2009. During the same period, platinum holdings in platinum ETFs was around 910K oz, around 15% of total supply and demand. For palladium, total supply and demand were 7175K oz and 6520K oz, respectively, in 2009. Total holdings in palladium of 1.3M oz represents 18% of supply and 20% demand last year.
Launch of PGM ETFs should not end here. Rather, it's just the beginning of a new wave of PGM ETFs. In Japan, Osaka Securities Exchange will list an ETF tracking platinum futures contract, together with an ETF tracking gold futures, in mid February.
Despite slump in 2009, autocatalyst remains a major source of demand for PGMs. Anticipated recovery in auto sector should help tighten the market further. US auto sales surged +12% yoy in January to 10.78M units. Although Toyota's recall crisis caused a plunge in its US sales to the lowest in 10 years, it should not have much impact on the overall outlook of auto market. China surpassed the US in terms of car sales and became the biggest auto market in 2009. Many auto giants expressed their interests in focusing on China, as well as other countries in Asia, this year. Industry experts forecast Chinese auto market will grow as much as 15% this year while Volkswagen, the largest car maker in Europe, announced plans to raise sales of cars, sport-utility vehicles and vans to 10M units in India and China this year.
Robust growth in auto sake also boosted fuel demand. In 2009, auto sales increased +46% yoy, triggering apparent demand for oil by +3.7%. According to China National Petroleum Corp (CNPC) apparent oil demand may rise more than +5% to 427M metric tons in 2010, in which gasoline demand will surge +7.8% to 72.2M metric tons and diesel consumption will grow +7.7% to 149.7M metric tons.
Energy prices continue to fall. WTI crude oil price slips to 76.2 (-1%), while both of heating oil and gasoline prices are down -0.7%.
GOLD
Gold's sharp fall today and break of 1100.5 minor support indicates that recovery from 1074.4 has completed at 1126.4 already. Intraday bias is flipped back to the downside for retesting 1074.4 low first. Break there will confirm decline resumption and should target 100% projection of 1163 to 1074.4 from 1126.4 at 1037.8 next. On the upside, even in case of recovery, break of 1126.4 resistance is needed to indicate that gold has bottomed out. Otherwise, outlook will now remain bearish.
In the bigger picture, gold has made a medium term top at 1227.5 and correction from there is likely still in progress to 100% projection of 1227.2 to 1075.2 from 1163 at 1010.7, which is close to 1000 psychological level. However, we'd expect such correction to be contained there at around 1000 psychological level and bring resumption of the whole up trend from 2008 low of 681. A break above 1163 will indicate that such correction has completed and will turn outlook bullish for another high above 1227.5.
SILVER
Silver's break of 16.015 support confirms that recent decline has resumed after recovery was limited by 4 hours 55 EMA. Intraday bias is flipped back to the downside and further fall should be seen to 61.8% retracement of 12.435 to 19.50 at 15.134 next On the upside, above 16.43 will turn intraday bias neutral again. But break of 16.95 is needed to indicate that Silver has bottomed. Otherwise, outlook will remain bearish.
In the bigger picture, current developments revived the case that silver has already topped out in medium term at 19.50. Decisive break of 16.19 projection target suggests that fall from 19.50 is developing into an impulsive move which further affirm the reversal scenario and bring deeper decline to lower medium term trend line at 14 level. Also, note that whole medium term rise from 8.4 is is treated as part of the long term, wide range, consolidation pattern that started at 21.44 back in Mar 08. Fall from 19.50 is possibly the third leg of such consolidation pattern and might target a new low below 8.5 after taking out 12.435 key support level. On the upside, above 18.925 resistance is now needed to invalidate this view. Otherwise, outlook will remain bearish.
CRUDE OIL
Crude oil's rebound stalled just ahead of 50% retracement of 83.95 to 72.43 at 78.19 and retreats sharply. Intraday bias is turned neutral with 4 hours MACD crossed below signal line. Break of 75.44 minor support will suggest that rebound from 72.43 has completed and will flip intraday bias back to the downside. for retesting this support first. Break will put medium term trend line support (at 71/72 level) back into focus. On the upside, above 78.19 will bring rally resumption to retest 83.95 instead.
In the bigger picture, crude oil managed to hold above medium term trend line support and rebounded strongly from 72.43. The development argues that medium term rise from 33.2 might not be over yet even though upside momentum is clearly diminishing. Another high above 83.95 might still be seen. Nevertheless, as rise from 33.2 is treated as a correction to down trend from 147.27, we'd continue to look of reversal signal as crude oil approaches 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. On the downside, break of 72.43 will now be an important signal that crude oil has topped out and will turn focus to 68.59 support for confirmation.
There are signs that the worries have been spread to other European countries. Stocks and bonds in Spain, Portugal and Hungary plummet amid worries that the governments may not be able to fund the heavy debts.
The euro dives to 1.3849 against USD, a level not seen since July 2009. High-yield currencies, such as AUD and NZD, also plunge after releases of disappointing economic data.
Commodities weaken as the dollar strengthens. The benchmark contract for gold slides -0.8% to 1103 in European session, following a -0.5% dip on the previous day. In our opinion, gold should benefit in the long-run of sovereign risk concerns persist. In fact, other than these small European countries, the US and the UK are also bearing heavy budget deficits. Investors should later realize that USD is not a safe haven as the US is seeking to expand stimulus measures which will result in a bloated budget deficit of $1.6 trillion this year.
Released Tuesday, the weekly financial statement of the Eurosystem indicated one of the Eurosystem central banks purchased gold, contributing to 1M euro increase in gold and gold receivables reserve. At the same time, sales of gold were minimal (below 2 metric tons) since the start of the 3rd CBGA on September 27, indicating official demand for gold remains stable.
We continue to see capitals flowing into US PGM ETFs. As of February 2, physical holdings of platinum surged to 244.9K oz, up +14% from the prior week. Correspondingly palladium holdings were flat at 399.9K oz, possibly a pause after a 40 times increase since the launch of the ETF.
Investment in ETF helps tightening supply of the metals as it's physically backed. According to Johnson Matthey's estimates total platinum supply was 6055K oz while demand was 5915K oz in 2009. During the same period, platinum holdings in platinum ETFs was around 910K oz, around 15% of total supply and demand. For palladium, total supply and demand were 7175K oz and 6520K oz, respectively, in 2009. Total holdings in palladium of 1.3M oz represents 18% of supply and 20% demand last year.
Launch of PGM ETFs should not end here. Rather, it's just the beginning of a new wave of PGM ETFs. In Japan, Osaka Securities Exchange will list an ETF tracking platinum futures contract, together with an ETF tracking gold futures, in mid February.
Despite slump in 2009, autocatalyst remains a major source of demand for PGMs. Anticipated recovery in auto sector should help tighten the market further. US auto sales surged +12% yoy in January to 10.78M units. Although Toyota's recall crisis caused a plunge in its US sales to the lowest in 10 years, it should not have much impact on the overall outlook of auto market. China surpassed the US in terms of car sales and became the biggest auto market in 2009. Many auto giants expressed their interests in focusing on China, as well as other countries in Asia, this year. Industry experts forecast Chinese auto market will grow as much as 15% this year while Volkswagen, the largest car maker in Europe, announced plans to raise sales of cars, sport-utility vehicles and vans to 10M units in India and China this year.
Robust growth in auto sake also boosted fuel demand. In 2009, auto sales increased +46% yoy, triggering apparent demand for oil by +3.7%. According to China National Petroleum Corp (CNPC) apparent oil demand may rise more than +5% to 427M metric tons in 2010, in which gasoline demand will surge +7.8% to 72.2M metric tons and diesel consumption will grow +7.7% to 149.7M metric tons.
Energy prices continue to fall. WTI crude oil price slips to 76.2 (-1%), while both of heating oil and gasoline prices are down -0.7%.
GOLD
Gold's sharp fall today and break of 1100.5 minor support indicates that recovery from 1074.4 has completed at 1126.4 already. Intraday bias is flipped back to the downside for retesting 1074.4 low first. Break there will confirm decline resumption and should target 100% projection of 1163 to 1074.4 from 1126.4 at 1037.8 next. On the upside, even in case of recovery, break of 1126.4 resistance is needed to indicate that gold has bottomed out. Otherwise, outlook will now remain bearish.
In the bigger picture, gold has made a medium term top at 1227.5 and correction from there is likely still in progress to 100% projection of 1227.2 to 1075.2 from 1163 at 1010.7, which is close to 1000 psychological level. However, we'd expect such correction to be contained there at around 1000 psychological level and bring resumption of the whole up trend from 2008 low of 681. A break above 1163 will indicate that such correction has completed and will turn outlook bullish for another high above 1227.5.
SILVER
Silver's break of 16.015 support confirms that recent decline has resumed after recovery was limited by 4 hours 55 EMA. Intraday bias is flipped back to the downside and further fall should be seen to 61.8% retracement of 12.435 to 19.50 at 15.134 next On the upside, above 16.43 will turn intraday bias neutral again. But break of 16.95 is needed to indicate that Silver has bottomed. Otherwise, outlook will remain bearish.
In the bigger picture, current developments revived the case that silver has already topped out in medium term at 19.50. Decisive break of 16.19 projection target suggests that fall from 19.50 is developing into an impulsive move which further affirm the reversal scenario and bring deeper decline to lower medium term trend line at 14 level. Also, note that whole medium term rise from 8.4 is is treated as part of the long term, wide range, consolidation pattern that started at 21.44 back in Mar 08. Fall from 19.50 is possibly the third leg of such consolidation pattern and might target a new low below 8.5 after taking out 12.435 key support level. On the upside, above 18.925 resistance is now needed to invalidate this view. Otherwise, outlook will remain bearish.
CRUDE OIL
Crude oil's rebound stalled just ahead of 50% retracement of 83.95 to 72.43 at 78.19 and retreats sharply. Intraday bias is turned neutral with 4 hours MACD crossed below signal line. Break of 75.44 minor support will suggest that rebound from 72.43 has completed and will flip intraday bias back to the downside. for retesting this support first. Break will put medium term trend line support (at 71/72 level) back into focus. On the upside, above 78.19 will bring rally resumption to retest 83.95 instead.
In the bigger picture, crude oil managed to hold above medium term trend line support and rebounded strongly from 72.43. The development argues that medium term rise from 33.2 might not be over yet even though upside momentum is clearly diminishing. Another high above 83.95 might still be seen. Nevertheless, as rise from 33.2 is treated as a correction to down trend from 147.27, we'd continue to look of reversal signal as crude oil approaches 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level. On the downside, break of 72.43 will now be an important signal that crude oil has topped out and will turn focus to 68.59 support for confirmation.
