Crude Oil has remained little changed in London trade so far today, with WTI front month June Futures trading down $-0.55 cents and Brent June Futures down just $-0.10 cents. Volatility is expected to increase considerably in New York trade, given mounting uncertainties over the Greek debt debacle and the sharp reactions to the euro/usd.

The recent reaction to the price of crude and the 11 month lows in the euro against the dollar have been fairly quiet to some extent with a continued steady bullish stock market. Notwithstanding, crude futures are vulnerable to the downside pressure should early support in the euro give way. Euro has been down to a low of $1.3202 in London trade today with signs of strong support there ($1.3200 lvl) also showing protection there last night, if this is broken we see further support below at $1.3000 and a break and hold of this level could see Euro swiftly drop to the $1.2800 region.

Although the equities could continue to send off favourable vibes as far as risk appetite is concerned and strength in Chinese oil demand going forward seems beyond doubt, one must remember that demand improvement during the second half of this year and beyond could possibly fall far short of most expectations as this year’s rising prices and high unemployment rates restrict consumption growth. The clash between bearish current fundamentals and longer term bullish expectations continues to sandwich Crude in the $80.00 – $87.00 range that we have traded within since early March, however it does appear that the current global oil supply overhang will eventually win out as a price driver with nearby WTI futures sliding further toward the bottom of the range.

Downside price possibilities could easily be exacerbated by as much as $5-10 should we see a stock market correction of more than 5% or so.The stocks advance of the past year remains strong and is not showing any clear indication of a significant sell-off. Economic releases of the past couple of months have generally exceeded expectations as have most company earnings of the past week. This could keep the large speculators comfortable on the long side of the energy complex with crude values possibly holding within the $80-85 zone through next week and into the month of May.

Gold
Gold dipped to $1,132/oz in New York before recovering to close with a loss of 0.49%. It has range traded from $1,137.50/oz to $1,143/oz in Asian and European trading this morning. Gold is currently trading at $1,140/oz and in euro and GBP terms, at €859/oz and £741/oz respectively.

Gold is being supported as the slow motion train wreck that is the Greek debt crisis rumbles on. The increasing likelihood of a Greek default with wider ramifications for the eurozone and the euro saw gold rise to close to its recent record (nominal) high at €865 per ounce. Greece’s deficit crisis is pushing its bond yields close to those of a junk-rated nation such as Pakistan – a country beset with geopolitical instability. Two-year Greek note yields soared to more than 11 percent this morning after Moody’s Investors Service cut the nation’s credit rating yesterday and the European Union said the country’s budget deficit was worse than previously forecast.

The risk of the Greek crisis spreading to other at risk European economies and creating contagion in the debt markets is real and significant. Indeed, a sovereign debt crisis and potential currency crisis would likely have as serious affects as the Bear Stearns and Lehman Brothers collapse. The same complacency that was prevalent prior to the Bear and Lehman collapse is prevalent today as seen in equity markets remaining near multi year highs.

The US Producer Price Index (PPI) for March jumped 0.7% and US wholesale food prices are up 6.8% in the past year. Food prices for the month rose by 2.4%, the sixth consecutive monthly increase and the largest jump in over 26 years. The numbers were worrying as they come at a time of dollar strength. The Reuters/ Jefferies CRB Index (see chart below) shows commodity prices remaining stubbornly high and this is feeding into the price increases. Were the dollar to come under pressure again there is a risk of a price spiral (see News).
US durable goods orders and new home sales may guide markets later today.

Silver
Silver has range traded from $17.90/oz to $18.01/oz this morning in Asia. Silver is currently trading at $17.96/oz, €13.53/oz and £11.65/oz.

Currencies and Precious Metals Performance (Year to Date)

Platinum Group Metals
Platinum is trading at $1,734/oz and palladium is currently trading at $563/oz. Rhodium is at $2,950/oz.

Platinum and palladium, used in the auto sector and for jewellery, continue to hit pre-recession highs as consumer demand revs up in Asia and internationally and investors bet on a lasting economic recovery. Prices for the two metals are also expected to keep climbing this year, despite some surpluses after massive stockpiling last year when prices were much lower. Platinum, which hit a two-year high of $1,751 (US) an ounce Thursday, is expected to reach up to $1,900 this year, London-based consulting group GFMS said in a report released the same day. Some analysts say the price of platinum could even go higher, driven by investor demand from new exchange-traded funds for the metals that came on the market earlier this year, coupled with the growth of the auto sector, particularly in China.

Prices for palladium, platinum’s sister metal, are expected to hit $675 an ounce this year, from about $560/oz today, according to GFMS. Palladium reached a two-year high of $569/oz on Wednesday. Palladium and platinum have risen by about 38 and 19 per cent, respectively, so far this year, compared with a 4-per-cent gain for gold. Palladium is in a better position to grow than platinum this year because it doesn’t face the same supply surplus, according to GFMS. Palladium’s supply-and-demand balance was even last year was about 7.5 million ounces, while platinum demand of about 6.4 million ounces fell short of 7.3 million ounces of supply.

News Inflation in the US is deepening as seen in the inflation numbers yesterday. Higher prices for vegetables helped drive US wholesale prices higher by a seasonally adjusted 0.7% in March. The producer price index has risen by 6% in the past year, led by a 23% rise in energy prices, the government agency said. It’s the largest year-over-year gain since September 2008. The big story in the March PPI was wholesale food prices, which rose 2.4%, matching the biggest gain in 26 years. Prices of fresh and dried vegetables soared 49.3%, the most in 16 years. Prices of seafood, meat and dairy goods also rose.

• Wholesale food prices are up 6.8% in the past year with fresh and dry vegetables up 56.1%, fresh fruits and melons up 28.8%, eggs for fresh use up 33.6%, pork up 19.1%, beef and veal up 10.7% and dairy products up 9.7%.
• Gold jewelry demand in India, the world’s largest buyer, may have extended gains in the first quarter, according to the World Gold Council. There are signs that jewelry demand in China also climbed in the period, the World Gold Council said in a report on its Web site which was reported by Bloomberg. “In the US, retail activity appears to be improving as the overall economy picks up” and that “may induce higher levels of gold jewelry purchasing than in the previous quarters,” it said. “Higher gold prices, however, have resulted in some evidence of demand for lighter weight pieces.”
• Britain may need to be bailed out by the IMF if the General Election results in a hung Parliament, Ken Clarke warned today. The shadow business secretary said there was a danger that markets would panic if no party had an overall majority after May 6. His comments came with the Lib Dems still riding high in the polls in the wake of Nick Clegg’s much-praised performance in last week’s first prime ministerial debate. UK Business Secretary Peter Mandelson accused Clarke and the IMF of “talking down” the UK economy.
• Turkey’s gold reserves remained unchanged according to the Central Bank of Turkey and reported by BloombergSummary of Turkey weekly international reserves, from the Central Bank of Turkey in Ankara:

Update provided by Goldcore

The penny has finally dropped and George Papandreou has finally asked the EU and the IMF to bail Greece out of its current financial plight.  How long has that taken when anyone who has got a little substance more than sawdust between their ears knew it was inevitable?  Yield on 2 year bonds have dropped to 9.16% and 5-years to 8.66%. The Euro has rallied a tad!

1st QUARTER GDP – Cynics amongst us wondered why Gordon Brown never mentioned GDP yesterday in the debate and then when he called for a press conference at 10am this morning, half an hour after the announcement of the figures from the ONS, we all knew we were going to hear the same old jargon – yes, I know the recovery is fragile; be patient; do not cut public expenditure etc, etc.  First quarter GDP of +0.2% rather than the estimated 0.4% is not really that surprising when we consider the inclement weather conditions that the UK was subjected to virtually throughout the quarter.  Clearly it had a very adverse affect particularly in the service sector which constitutes about 76% of growth measurement.  It really only goes to show how unbalanced our economy is and the price we are going to have to pay for neglecting manufacturing output and industrial production for over a decade in favour of the service sector which of course let us down two years ago.  It’s possible that this figure will be subject to review and adjustment but it does not augur well for the second half of the year, particularly if the country returns either a Labour administration or a Lib-Lab pact. 

With great respect to the Prime Minister – though some would say I have been disrespectful of him for 13 years – he is wrong.  We need to cut public expenditure NOW!  There is plenty of stimulus out there already in the market, in the form of QE and massive levels of liquidity provided by the Bank of England for the banking sector.  The level of waste in virtually every government department is ludicrous.  If we wait another year the cost of servicing debt will rocket.  The tax payer will take the burden unless Mr Brown eventually wants to totally wreck key public services by being forced to make even more stringent cuts that are necessary. So, tax will have to go up, there will be less disposable income, retail will collapse and unemployment will rise.  We all know that the Prime Minister is not listening, it is just sensible to record the notion. 

David Buik
BGC Partners London

Gold futures rose for the first time in three days on speculative Buying from traders after new signs of Global inflationary concerns

Gold had dropped over 2% t in the past couple of days since the announcement of the SEC’s investigation of Goldman Sachs & Co alleged act of fraud which see traders pile into the dollar as a perceived safer asset. Normally, there’s a pretty good negative correlation.  As the dollar strengthens, the price of gold decreases, since gold is denominated in US Dollars but widely used in global markets and by central banks of foreign countries. India the largest consumer of Gold for Jewellery raised interest rates for the second time in a month to curb inflation and producer prices in Germany, the largest retail investment market for gold, accelerated last month. Gold is currently trading up $5.50 on the day in London at $1141.00oz

India has inflation of almost 15%. Australia’s central bank cited the country’s mining boom leading to inflationary pressure as a reason for raising rates two weeks ago. Today the U.K.’s inflation rate jumped more than economists forecast in March, with the consumer price index (CPI) climbing 3.4% , compared with a 3 percent increase in February and even further above the central bank’s government set target of 2%. Traditionally, gold is purchased as a good inflation hedge, though growth in stocks also can offset inflation in the long run. Money market funds, which pay higher yields as interest rates rise during inflationary times, can also be a good inflation hedge In the case of hyperinflation, hard assets such as precious metals are normally favoured by investors, while the value of paper-based assets such as stocks, bonds, and currency erodes rapidly.