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Weekly Metals Commentary - October 13, 2009

Nearly all commodities prices made strong gains last week. Over the past several weeks there has been rising interest in commodities from investors and commodities trading banks. This has been in addition to the already high levels of investor interest in commodities in general. A weakening U.S. dollar, and concerns over currency mar-ket instability and volatility, is helping investors see com-modities as attractive investments. This trend is expected to continue. That said, prices may come off slightly later this week on profit-taking. This would follow the sharp price increases being seen in most commodities. If the price increases in commodities pause, banks covering their short positions also will pause, and that could open the door for investors to take profits. If this occurs this week, prices could fall. The longer term trends fueling investor interest in most all commodities, remain in place, how-ever, so any drop in prices due to such profit-taking would be expected to be limited in time and depth. Investors may take such price declines as buying opportunities as they have been doing so for many commodities already.

PRECIOUS METALS: The price strength in the precious metals complex may give way to some profit-taking soon. Gold is at historical highs while silver, platinum, and pal-ladium are at multi-month highs. Prices are expected to resume their upward trend after a pause.
BASE METALS: With the Chinese markets reopening this week after the national holidays, LME traded base metals may take some price direction from the SHFE. There have been tentative signs of improved demand in recent weeks while supply concerns have been at high levels.
ENERGY: Fundamentals are generally weak across the energy complex. U.S. inventories of crude oil, oil prod-ucts, and natural gas are historically high and demand re-mains sluggish. However, the heating oil and natural gas markets, which are sensitive to demand from colder tem-peratures, may remain supported by seasonal trends.
SOFT COMMODITIES: Orange juice prices are expected to remain firm this week as a result of the decline in the 2009/10 Florida crop forecast. Improvement in demand, on a seasonal basis, also is expected to support prices.

Gold prices may ease lower later this week. Prices could fall on profit-taking coupled with a cessation of the delta hedge buying by bullion dealers that is believed to have been the major impetus for the spike in prices last week. Bullion dealers re-portedly were hedging December calls they had sold in late 2009, with strike prices at $1,050, $1,100, and $1,200. While prices may back off this week, they are expected to re-main strong and move higher later in 2009 and early 2010. Investment
demand remains strong, fueled by a weakening U.S. dollar and other eco-nomic concerns. Combined ETF gold holdings reached a record 56.4 million ounces last week, and are up 17.8 million ounces this year. There also was a surge in activity in futures and options markets. Concerns over the United States economy continue to weigh on the dollar. Demand for physical gold from investors has been firm, but demand for gold jew-elry continues to decline.

The daily commentaries provide a recap of each product's traded price activity, an analysis of the factors that influenced price activity, a recap of any reports released that day, and a look ahead at the next day's schedule. CME Group provides market commentaries for corn, wheat, soybeans, gold, silver, FX, equity indexes and regional market updates.

The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.