KASB Securities Limited and Economics Research- Commodities Corner

Karachi, July 13, 2012 (PPI-OT): Greenback scales heights and enjoys ‘gold’ ranking

US tightens the noose on Iran; Dollar Index at highest since Aug-10

According to KASB Securities Limited,

• With reports that the US was looking to tighten the rope around Iran in the form of fresh sanctions, the market jerked upwards intra-day in response to the fresh supply threats. The sanctions are aimed at hindering the activities of those companies and shipping channels which Iran has been utilizing in an attempt to bypass the current barriers. Brent ended up outperforming WTI (+0.84% vs. 0.31%).

• Further upside in crude prices is likely to face stiff resistance in the face of a surging dollar whereby the Dollar Index (DXY) has now reached its highest level since Aug-10. Higher output from Libya and Iraq has also started to cover up the shortfall from Iran.

• A correction in global equities (Dow Jones -0.3%, Euro Stoxx50 -0.8%) materialized over weak sentiments as the Fed minutes did not prescribe QE-III as an immediate cure. The Bank of Japan (BOJ) released its monetary policy statement yesterday but refrained from pumping additional stimulus or lowering benchmark rates. Investors were counting on the latter to follow the footsteps of its global peers (Europe, Brazil and China) and flush markets with liquidity.

Precious structure faces headwinds over soaring USD

• With no signs of monetary stimulus and the DXY scaling old heights, the precious complex as a whole made little progress barring silver (+0.14%). Bids on the greenback emerged from a drop in weekly initial claims to 350k vs. market expectations of 376k. Overall the market is floating in a tough environment where the lack of a definitive trend is keeping investors jittery and range bound trading is preferred.

• Late during the session, an address delivered by a key FOMC member outlined that the US economy remains on the edge and the Fed would not hesitate to purchase additional mortgage-backed securities if growth and unemployment indicators remain sticky.

• KASB Securities Limited highlights 2H driver of gold prices could be in the form of the US fiscal cliff which is looming over the horizon and could force markets to relive the drama of summer 2011.

Source: Bloomberg, Reuters

Key events/data releases

• Italian 10-year bond auction: Following EU leaders’ decision to lower borrowing costs, it would be interesting to note market reaction and appetite for Italian paper.

• Preliminary UoM Consumer Sentiment: Survey of 500 consumers which asks for an assessment of current and future economic conditions.

Gold Spot

Technical Strategy: Buy on Weakness

Gold recovered from its day’s low only to close in the red. Moreover it took support at its short term support trendline (purple line) The Stochastic Oscillator has ticked up and has generated a weak buy signal in the oversold region while the RSI is neutral. Moreover the MACD has assumed a downtrend while maintaining its sell signal. This suggests that the recovery is likely to be weak as the 30 DMA and 50 DMA looms overhead. The first support is at US$1,561.10 and second support is at US$1,549.60. The first resistance is at US$1,583.27 and the second resistance is at US$1,594.78.

Silver Spot

Technical Strategy: Buy on Weakness

Silver showed a good recovery from its day’s low to close marginally in the green. The Stochastic Oscillator has improved and has generated a weak buy signal while the RSI has improved and maintains its weak buy signal as well. What remains to be seen is if silver breaks above its resistance trendline as that would signal further upside. The first support is at US$26.83 and second support at US$26.49. The first resistance is at US$27.59 and the second resistance is at US$28.06.

WTI Spot (Crude Oil)

Technical Strategy: Buy on Weakness

WTI opened in the red however recovered to close in the green. The Stochastic Oscillator has generated a weak buy signal while the RSI has shown improvement while managing to maintain its buy signal. In a broader sense WTI’s 30-DMA is creating support around which it is consolidating. The first support is at US$85.10 and second support is at US$84.16. The first resistance is at US$87.06 and the second resistance is at US$88.00.