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  • Fed speculation hits commodities, but Robusta Coffee tests 2 year high 0 comments
    Oct 27, 2010 8:32 AM | about stocks: CAFE, GMCR, JO, PEET, JVA, JJU, JJUC, ACH, GBS, GFI, SLW, SST.V

    Strength in the greenback is dominating price action across commodities today, following on from a report in the Wall Street Journal suggesting the size of the Fed’s quantitative easing program will be less than expected, at $2 billion of treasury purchases spread over a number of months.

    As has been the case in recent weeks, the precious metals complex particularly is feeling pressure form the strength in the dollar, with gold retreating over 1% in today’s session. This comes despite rumours that China may be making more moves to significantly increase its gold reserves, after a representative of the China Chamber of International Commerce was quoted saying that the country’s gold reserves are far from being enough if the yuan is to become an international currency like the US dollar or the euro.

    Also seeing a lot of interest in the precious metals sector today’ is news that Commodity Futures Trading Commission (CFTC) Commissioner Bart Chilton said they have discovered signs of fraudulent attempts to influence and “what I consider deviously control” the price of silver. Market speculation suggests this comes from the idea that a small number of traders in Comex silver futures hold a disproportionate number of the short positions for the contracts.

    On the technical front, the 21-day moving average ($1,341/oz) is still offering overhead resistance to spot gold today, with 10-day momentum pushing further into downward territory; indications that further weakening may be on the cards. A doji pattern on yesterday’s candlestick also offers signs that Monday’s rally will remain short lived, and any strong sell moves are expected to follow through before support is met at the June high near $1,265/oz.

    The strong dollar has pushed WTI Nymex light sweet crude back below the $82/bbl mark today, seeing additional pressure after yesterday’s American Petroleum Institute (NYSEMKT:API) inventory data showed an unexpectedly sharp 6.4 million barrels (mbls) increase in crude stocks for the week; bringing about concerns that today’s more extensive US Department of Energy (DoE) numbers will show a similarly large rise.

    The API data also showed a 1.8mbls fall in gasoline stocks; possible indications of the French refinery strike beginning to filter through to US products, and again a sign traders will be looking for in today’s DoE numbers. Estimates for today’s data, published by the Energy Information Administration (NYSEMKT:EIA) at 1030EST, are beginning to vary following the API data, although general consensus suggests crude stocks will increase by around 1.5 – 2mbls, with middle distillates likely to see a 1mbls draw, and with gasoline inventories expected to see only muted moves in either direction.

    Traders are reporting the front month natural gas contracts are beginning to see pressure coming through today as positions are rolled ahead of the Nymex Nov10 contract expiry at the close, with Nymex Nov10 heating oil and RBOB contracts due to expire on Friday. This is also bringing about some moves, all be them mild, in crude contracts, as the contract expiries necessitate a shift in the books for those holding crack spread trades (i.e. a position in crude oil offset against positions held in its ‘cracked’ products).

    As with the precious complex, base metals are under pressure from the stronger dollar today, with zinc underperforming at almost 3% losses on the day. The Chinese Ministry for Industry and Information Technology has lowered the forecast for the country’s domestic aluminium production this year on the back of the energy saving measures implemented by the government, down 1 million to 16 million tonnes. That said, this is still a 23% year-on-year increase, and combined with data from the China Nonferrous Metals Industry Association, which suggested 3.6 million tonnes of new aluminium capacities are currently underway in China, the market still looks set to see ample supply coming from the Asian giant.

    In the agricultural sector, Robusta Coffee prices are hovering near the 2-year high around $1,900 a tonne today, despite news that the 2010/11 crop outlook in Vietnam, the world’s number one Robusta Coffee producer, is strong; an expected 20 million bags or 1.2 million tonnes. wheat saw a sharp 2.7% rise in Chicago yesterday after the SU Department of Agriculture (USDA) crop progress report suggested this year’s winter wheat harvest may be lower than expected, with plants in their worst state in eight years.

    Despite this however, wheat and other soft commodities are all weaker in today’s session, as the strong dollar and risk aversion hits the complex as a whole.

    Disclosure: no positions
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