My Diary 561 --- ZT Commodities commentary 27Apr2009

Deutsch Bank posted a bearish trade recommendation on copper last week. Copper has been one of the best performing commodities up till now for 2009, and has appreciated around 50% from the close of 2008. One of the reason supporting copper prices has been the optimism of China GDP and the SRB’s strategic buying. Some reports now speculate that Chins’s GDP growth may further slow Q2 of 2009 and that the SRB’s buying shall have halted at prices above 4800/ton, DB’s report also pointed out the Chinese government may issue measures to curb excess lending to avoid a liquidity bubble in Q2 2009, all these factors turned away from higher copper prices. In addition, risk aversion reemerged as the global equities market seemed to meet resistance at the current levels, the uncertainties of the US Treasury’s stress test results and also the fear of global spreading of the swine flu.

Gold prices was up 5.3% last week and COMEX gold settled at 914.40/oz, the highest level seen in 3 weeks, the major boost was given by SAFE announcement of China’s gold reserves have increased to 1054 tons, up 76% since 2003. Although the value of gold announced only stands as a small part of China’s total reserve, but the confirmation of the purchases has sent a message that as the dollar has weakened its appeal as global reserve currency, gold has been considered by a few global Central banks as an alternative. Sentiment is still quite favorable for gold as market still boosted by the possible increase holding of gold as reserves in China, and risk aversion seemed to have return as the rally in equities and copper seems to turn around, traders also seen physical buying to return to markets around 900/oz levels. US GDP and FOMC announcement will be the important information to watch for this week as to see whether economy is still turning for the worse.

Platinum for July delivery lost 2.3%, the deepest weekly decline in 3 months, to close at 1184/oz last week as both GM's closure plans and metal consultancy GFMS's forecasts that platinum will remain in surplus for the second year in 2009 put pressure on price. Moreover, GFMS predicted that platinum will trade between $900-1375 this year. Apart from GM, Honda also announced to slash production in March while Toyota posted decline in sale for 3 quarters in a row. The news generated much worries about the auto sector. As Chrysler and GM will release details of plans to avoid bankruptcy before the deadline set by the US government this week, any negative surprise from the US auto industry shall drive platinum and palladium for further correction.