PPI Original Text (PPI-OT) – KASB Securities Limited and Economics Research- Commodities Corner

Karachi, May 09, 2012 (PPI-OT): Broad-based sell-off over choppy political outlook

Politics continue to shape market sentiments

According to KASB Securities Limited,

• Gold prices caved in to heavy selling pressure breaching the US$1,600/oz mark on Euro zone jitters and as the single currency was also sold off (-0.4% vs. USD) over the changing political landscape in France and Greece. The future of austerity plans was questioned and a solid improvement in German Industrial Production (2.8% MoM) vs. an expectation of 0.8% MoM, did little to salvage the Euro.

• Despite erasing some losses and recovering from the day’s low (US$1,595.57), gold has breached key technical support levels which are indicative of further downside.

• Sources from the troika (EU, ECB and IMF) have dismissed speculation that a renegotiation of the Greek bailout package may be needed citing adherence to the agreed measures as the only way for Greece to retain its Euro zone membership.

• Moreover, there was uncertainty that the new French President would seek a renegotiation of the EU fiscal pact which was agreed upon in March, another notion which was brushed aside by the head of the EU Finance Minister’s group. The uncertain outlook kept a shadow of doubt over European equity markets (DAX -1.9%, CAC40 – 2.8%).

Gloomy fortunes persist for oil

• Sell-off in the oil market extended for a fifth day, with prices taking a beating and losing an additional 0.9% to reach levels last seen in Nov-11. Pressure also came over Saudi comments that the Kingdom was pumping 10mn bpd and has inventory to the tune of 80mn barrels to meet any supply short-fall. As per reports, the inventory is over and above a spare capacity of 2.5mn bpd which can also be tapped if the need arises.

• Oil markets now await the weekly crude oil inventory data from the Energy Dept. where another stockpile accumulation (2mn barrels) is being priced in by the market.

Key events/data releases

• Crude Oil Inventories

• US 10-year Treasury Bond Auction

Gold Spot

Technical Strategy: Sell on Strength

Gold witnessed a substantial decline to close well into the red. Moreover it closed below its critical support trendline (blue line) as well as its recent low of US$1,612. The Stochastic Oscillator continues to show weakness and is heading towards the oversold region, while the RSI continues to decline as well. The first support is at US$1,597.08 and second support is at US$1,585.24. The first resistance is at US$1,617.44 and the second resistance is at US$1,628.99.

Silver Spot

Technical Strategy: Buy on Weakness

Silver continued to decline and registered a lower high and a lower low to close in the red. Moreover it recovered after testing its channel trendline to create somewhat of a long lower shadow. The Stochastic Oscillator has started to level off around the oversold region and is on the verge of generating a buy signal while the RSI is about to enter its oversold region. The first support is at US$29.07 and second support at US$28.67. The first resistance is at US$29.75 and the second resistance is at US$30.07.

WTI Spot (Crude Oil)

Technical Strategy: Buy on Weakness

WTI remained in the red throughout the session however witnessed a modest recovery after testing its 200-DMA to close above its open. The resultant formation is a hollow red candlestick which usually indicates a bottom. The Stochastic Oscillator is now well oversold and is about to generate a buy signal while the RSI has leveled off around its oversold region. The first support is at US$96.27 and second support is at US$95.49. The first resistance is at US$97.74 and the second resistance is at US$98.53.