Commodity Trade Mantra

Gold Rises as ECB Forecasts Eurozone Weakness in 2013

Gold Rises as ECB Forecasts Weakness

Gold Rises as ECB Forecasts Eurozone Weakness in 2013

Gold Prices rose after a week of heavy selling. The Gold Market is nearing oversold levels, which may soften the downside for Gold Futures. Gold Prices have been moving below the 100-day moving average for the last consecutive 3 days, which is creating a downside pressure. Gold Bullion buying took off yesterday on some short-covering after comments from ECB chief Mario Draghi boosted expectations of an interest rate cut next year in the face of another contraction in the economy. ECB Chief Mario Draghi said, “Weak Eurozone activity is expected to continue into next year & a gradual recovery should start later in 2013”. Draghi also spoke on Inflation, economic expectations, next week’s European Union summit and a single banking supervisor for the Eurozone. Mario Draghi said the Eurozone economy was likely to shrink next year as it has in 2012, and downside risks to growth prevailed for the region battered by a prolonged debt crisis. ECB forecasts the economy will shrink 0.5% this year, more than the 0.4% contraction predicted in September. The ECB yesterday further cut its economic forecasts for the Eurozone, predicting contractions of 0.3% in 2013 before growth of 1.2% in 2014. Gold yet seemed headed for its second straight week of decline. Though, Gold Prices fell to a one-month low earlier this week, investors remain confident in the outlook of Gold, as they piled into Gold ETF – Exchange Traded Funds, whose holdings hit a record high for a second consecutive day.U.S.non-farm payrolls data today is expected to show a sharp drop in job growth in November as super storm Sandy disrupted economic activity. The US Unemployment rate is seen holding steady at 7.9%.

In other news, Greece’s unemployment rate rose to 26% in September, from 25.3% in August, it was reported Thursday. On the positive side, German manufacturing orders increased more than expected, at up 3.9% in October. The BoE – Bank of England and the ECB – European Central Bank left their interest rates unchanged after meetings Thursday, as expected. Yesterday, holdings in exchange-traded products backed by gold climbed to a record for the 14th straight session, the latest data compiled by Bloomberg show. “Gold’s fundamentals are intact,” said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen. “Investors seem to regard $1,690 as an attractive level to buy Gold.”

Gold among Top Commodity Picks by Morgan Stanley for 2013:

Morgan Stanley lists Gold and Silver, along with Corn and Soybeans, as its most preferred commodities for 2013. Commodities are cyclical, but the elasticity of supply and demand, as well as the length of the cycle, varies significantly across the complex, the firm said. The third round of quantitative easing in the US and European Central Bank’s unlimited bond-purchase program are the most important factors for a continuing weak trend in the US Dollar, and in turn a key for stronger gold prices in the short term, Morgan Stanley said. “However, low nominal and negative real interest rates, ongoing geopolitical risk in the Middle East and continued mine supply issues are also supportive,” the firm said. Morgan Stanley said it looks for continued support from central-bank buying and for a recovery in Indian demand as the country becomes more accustomed to higher prices. Morgan Stanley said Silver is a “cheap proxy to Gold” and said it looks for the metal to outperform Gold in 2013. A weaker dollar and rising investor demand bolster precious metals while supply curbs aid grains, Morgan Stanley said. Gold may average $1,853 an ounce in 2013, while silver may be $35 an ounce, Morgan Stanley said. That compares with gold’s average of $1,668 so far this year and $31.1542 for silver. Soybeans may average $15.70 a bushel in 2012-2013. In contrast, Goldman Sachs Group, backing Crude Oil, Corn and Copper, expects Gold to peak in 2013 on a recovery in the US Economy.

Base Metals seen Weaker:

Morgan Stanley analysts described themselves as “relatively cautious” on Base Metals due to a “guarded view” of first-half global economic growth and the complex’s strong correlation to global macroeconomic trends. “The downside risks to pricing are only magnified by a structural oversupply evident in most Base Metals markets, with the key exception of copper and perhaps lead,” Morgan Stanley said. “Upside for next year may be found in 2H13 as our global economists are forecasting a pick-up in industrial activity.” Morgan Stanley said Copper is “our sole pick in this complex,” forecasting an average price of $8,600 a metric ton. While supply is expected to grow, global inventories are starting from a low base. “We are becoming increasingly positive on the outlook for copper’s key end-use sectors in 2013, especially in China,” Morgan Stanley said. Meanwhile Matthew Parry, economist at Moody’s, is only “mildly bearish” on Base Metals as a whole. He said the Aluminum and Copper market could be set for a correction, and believes that the latter has risen largely due to “speculative interest.” He said that fundamentals “suggest we’re entering a mild oversupply” of copper. The economist sees a slowdown over the next year, but not a dramatic one. Instead, he says the decline will merely “trim off the very top of the extremely rapid growth” of Base Metals. HSBC’s Chief Commodities Analyst Jim Steel pointed out the historic highs in base metals — but said that until inventories get “a little higher,” they likely won’t correct “significantly.” He declared that a pullback is “broadly” due — but maintains it may take time for volatility to ease.

Bundesbank Slashes 2013 German Growth Forecast:

The Bundesbank sliced more than 1 percentage point off its forecast for economic expansion in Germany next year after the sovereign debt crisis pushed the euro area into recession and global growth slowed. The Bundesbank cut its 2013 projection to 0.4% from the 1.6% predicted in June and said the economy, Europe’s largest, will grow 0.7% this year, down from its previous forecast of 1%. The economy will contract in the fourth quarter and stagnate in the first, the Frankfurt-based central bank said. It will recover to expand 1.9% in 2014, according to the new forecasts. “Economic prospects have clouded in Germany” as a result of “a severe adjustment recession in parts of the euro region and the slowdown of the global economy,” the Bundesbank said. “However, there’s reasonable hope that the phase of economic weakness won’t last too long and Germany will return to growth.” The Euro declined a quarter of a cent after the report and traded at $1.2940.

Interesting: Are Fiat Currencies Headed for a Collapse?

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