Gold extended the selloff late last week as the commodity
market slumped and the US dollar strengthened. Currently trading
at 1500, the benchmark contract for the yellow metal has lost
$80/oz and $60/oz from the all-time high and June's high
respectively. The 3-day selloff has ruined hopes of resumption of
gold's uptrend in 2Q11. Despite these, we retain the view that
gold will be supported by retail and official buying as price
corrects amid low interest-rate environments, lingering sovereign
debt crisis in Greece and uncertainties in global economic
outlook.
Greek lawmakers are scheduled to vote on June 29 on a 5-year
austerity plan which has to pass so as to secure additional
funding from the EU/IMF/ECB. Meanwhile, conservative opposition
has stated they will vote against the plan while polls showed
that 75% of Greece's 11M people oppose the measures. Deputy Prime
Minister Theodore Pangalos said he believes the first vote would
pass but there are more hurdles for the second implementation
bill. Even if the plan is eventually passed, this does not mark
an end to sovereign debt crisis. George Soros said over the
weekend that it was 'probably inevitable' that a country would
leave the euro. He added, 'we are on the verge of an economic
collapse which starts, let's say, in Greece but could easily
spread. The financial system remains extremely vulnerable...We
are on the edge of collapse and that is the time to recognize the
need for change'. The comments damped market sentiment.
The Basel Committee on Banking Supervision said over the
weekend that banks that are too big to fail would need to set
aside 2.5% in additional capital. The decision hurt risk appetite
and thus is negative for commodities.
Also over the weekend, Chinese Premier Wen Jiabao was quoted
by Hong Kong media by stating that 'China's financial situation
will still be among the best in the world this year, with
economic growth kept above 8-9%, and CPI controlled under 5%'.
While sounding less certain when compared with his comments in a
Financial Times column on Friday that 'we are confident price
rises will be firmly under control this year', this may signal
that policies of Chinese government in the second half of the
year may skew slightly from combating inflation to encouraging
growth. If that's the case, commodities, especially oil and base
metals, will benefit.
Commitments of Traders:
Speculators were bearish towards the energy complex in the
week ended June 21. Net length for
crude oil
futures plunged -17 304 to 149 067 contracts, the lowest level
since November 2010. Net lengths for
heating oil
futures and
gasoline
futures slumped to 26 482 and 54 479 contracts respectively. Net
short for
natural gas
futures rose for a second consecutive week to 170 877
contracts.
Speculators were mixed towards the precious metal complex. Net
lengths for
gold
futures and
silver
futures increased to 203 227 contracts to 19 323 contracts
respectively. For PGMs, net lengths for
platinum
futures and
palladium
futures dropped to 19 463 contracts and 12 288 contracts
respectively.
