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Tuesday, September 14, 2010

Crude Oil Retreats Along With Equities as Economic Data Disappoints

From Oil N Gold Insights.....

Crude oil pulled back in concert with stock markets. Political environment in Japan and economic releases in the UK and the Eurozone took center stage in driving market sentiment. Currently trading at 76.7, the front month WTI contract retreated for the first time in 3 days after soaring to a 1 month high of 78.04 yesterday. Weakness in USD sent precious metals higher. Gold climbed to as high as 1256.9 while silver continued trading above 20. For PGMs, both platinum and palladium strengthened for a second day to 5 week high of 1570 and 4 month high of 541 respectively.

In Japan, Prime Minister Naoto Kan's victory as the head of the ruling Democratic Party of Japan (DPJ) pushed the yen to a 15 year high against the dollar. Kan has been viewed as more tolerant to yen's appreciation than another PM candidate Ichiro Ozawa.

In the Eurozone, ZEW's index signaled investors lost confidence on Eurozone's economy. The 'economic sentiment' index for the 16-nation region plummeted to 4.4 in September from 15.8 in August. The market had anticipated a milder drop to 14.5. The reading specifically for Germany slumped to -4.3 in August from 14 a month ago. In the UK, headline CPI surprisingly rose to +3.1% y/y in August. Inflation has been overshooting BOE's target of +3% for 6 straight months, increasing the difficulties for the central bank to implement measures to stimulate growth.

Gold/silver ratio has dropped to 62.2 yesterday from 64.4 earlier in the month and above 70 earlier this year, indicating silver's outperformance. However, we have become more cautious of a correction in silver price from current price level. In fact, silver is the only precious metal under our coverage that is oversupplied due to rising mine production.

PGM prices rallied as a labor strike at the South African PGM producer Northam Platinum entered a second week. According to the company, about 80% of the mine's 6 800 workers were on the strike.


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