Oil gains may be short-lived, analysts warn

Oil gains may be short-lived, analysts warn

The research, written by CPM Group, argues that high US inventories, profit-taking and tepid investor sentiment will weigh on the price. Supply disruptions in the Gulf of Mexico due to tropical storms may push the price above $80 or even $82 this week, but the gain may be short-lived.

The most important background for commodities is the economic outlook in developed countries, as demand in developing nations remains strong. As the forecast for Europe and Japan has brightened, offsetting slower growth in the US, most commodities have rallied. But while investors expect economic activity to pick up in Europe over the next months, they remain concerned over its fragility.

Insecurity pushes gold and silver up

CPM expects gold and silver prices to benefit from continuing concerns over financial and economic prospects.

The roll of the futures contracts in the New York market may help keep gold above $1,180 an ounce, but it should not be surprising if prices fall below this level later this week or in August, warns CPM.

Combined exchange-traded fund gold holdings were 65.41m ounces on July 22, down 415,000 ounces from the end of the previous week, but 8.71m ounces higher than at the beginning of the year.

Silver is likely to receive stronger support in the medium to longer term as demand improves, CPM believes. Recovering gold prices have helped lift silver prices, and investors took advantage of relatively low prices last week.

Combined exchange-traded silver holdings grew to 487.2m ounces by July22, up 472,000 from the end of the previous week.

Euro recovers on US weakness

CPM expects the euro to be capped at $1.31 this week, after an 8% appreciation. Investor sentiment has shifted away from concerns over sovereign debt and deficit problems in the euro zone, and focused more strongly on slower US growth pospects.

The stress test results of European banks may cause another sentiment shift, cautions CPM, but it expects broad consolidation in the euro to continue overall.

The Indian rupee may trade between $2.12 and $2.14 per 100 rupees this week, forecasts CPM. The rupee fell toward $2.10 at the beginning of last week, its lowest level since May 25.

Foreign fund net outflows from India’s debt market stood at $139m on July 21 – the largest daily withdrawal since June 29. Foreign investment in India’s domestic markets remains elevated, however, as concerns over inflation have eased and investor sentiment toward India’s economic growth prospects has improved. CPM thus believes the rupee could appreciate in the medium to longer term.

Pound likely to move sideways

CPM expects the pound to trade on either side of $1.55 this week. Higher than expected public borrowing pushed the pound down, but a strong June in the retail sector and good second quarter GDP numbers helped it recover. Gains may remain capped at $1.56 and the pound is likely to trade sideways, forecasts CPM. However, as investors become more confident in the UK’s economic recovery, the pound should stay above $1.53 in the near term, it reckons.

Yen benefits from safe haven reputation

The yen trended higher due to concerns over sovereign debt problems in Europe and CPM expects it to hold above 1.14 cents this week. This trend is further bolstered by the weak US outlook, pushing the yen up to seven month highs last week. Government officials have expressed their willingness to stem a strengthening yen and conduct further economic stimulus.

Mareen Goebel +44 207 779 8358 mgoebel@fow.com