CN:Commodities Remain Pressured as Greece Discusses Austerity Measures
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.
