October - The Month Ahead

Welcome to our analysis of key dates coming up in October 2010.

Various markets experienced big moves in September, with the major stock indices managing to shake off the weakness that had dogged them in August. The US dollar, however, came under pressure, particularly from the euro which continued to claw back some of the ground lost in the first half of the year. Gold, often perceived as a safe haven, was relentless in setting fresh all-time highs.

Investors remain concerned about the fragility of the economic recovery, which means there are some potential market-moving events to watch out for during October. Keep an eye on the monthly US non-farm payrolls, which, uncharacteristically, are released on the second Friday of the month (8 October). Current expectations are for a drop of around 15,000 jobs in the USA during September.

Other big events that may result in widespread volatility are the central bank interest-rate announcements. No change to the base rate is expected, but with both the US Federal Reserve and the Bank of England refusing to rule out further quantitative easing to underpin recovery, any signs of additional measures on the horizon could see strong reaction across a range of assets.

Silver @ 22$ - 33333 Mcx

It's been a good week for silver, with the precious metal gaining 4% to $21.97 an ounce. Deflationary fears and the use of QE as an instrument to stimulate growth and devalue the US dollar have encouraged investors to diversify into assets that will protect their wealth. A drop in US consumer confidence and weaker-than-expected Richmond Federal Reserve Manufacturing Index didn't help the situation, as it gave the Fed more ammunition to begin another round of QE. The ensuing broad decline in the US dollar pushed silver to a 30-year high this week. While silver is often called the poor man's gold, there are a number of factors that may see silver outperform its more illustrious partner in the coming years. Unlike gold, silver is used extensively for industrial applications; as a matter of fact around half of silver demand is consumed for this reason. These applications include silver alloys used in batteries, electrical applications that require superior conductivity such as TVs and microwaves, and as a catalyst for chemical reactions. A large amount of silver is used in photography and of course, for jewellery and silverware. In addition to these wide applications, silver is also becoming the metal of choice to use in solar panels for its reflective ability and excellent conductivity. With China at the forefront of solar technology, the country is consuming more and more silver and silver exports have fallen 64% as a result. China is the world’s third-largest producer of silver and accounted for almost 13% of global production in 2009. Thus a reduction in China's exports will suppress the availability of silver globally, which in turn supports the metal's value. Besides the physical appeal of silver, the gold-to-silver ratio suggests that silver could make further headway and outperform its more expensive cousin. The gold-to-silver ratio is currently around 60, whereas in the past it has averaged around 55. Historically, this ratio tends to be mean reverting, which suggests silver has some catch up to do with gold. The popularity of gold has seen it rise to all-time highs, but as investors begin to worry that gold has become too expensive, they are beginning to take a closer interest in silver.

Crude Oil

November crude oil futures traded at $77.81 a barrel on Thursday morning, representing a 3.5% gain on the week. Speculation about a revival in QE has helped reinvigorate a rally in many commodities this week. The expectation of additional QE weakened the US dollar, which in turn rendered commodities, priced in US dollars, relatively cheaper in foreign currency terms. Falling energy stockpiles and evidence of an expansion in Chinese manufacturing sector also contributed the weekly rally in crude oil. On Wednesday a report from the US government's Energy Department showed that crude oil inventories fell by 500,000 barrels in the week ending 24 September. The size of the drawdown was larger than the estimate shown in a survey by Dow Jones Newswires. Meanwhile, declines in gasoline and distillates confounded analysts who were expecting an increase. Gasoline stockpiles dropped by 3.47 million barrels to 222.6 million last week, and stocks of distillates, which include heating oil and diesel, fell by 1.27 million barrels to 173.6 million. A separate report compiled by HSBC Holdings showed that manufacturing in China, the world's fastest-growing oil-consuming country, accelerated for a second month in September. China's Purchasing Managers Index for the manufacturing sector rose to 52.9, the highest in five months. The data was seasonally adjusted and readings above 50 indicate an expansion. Going forwards, crude oil investors should – as always – be very careful about where they place their stop losses, as volatility in the commodity is poised to increase. Although the reintroduction of QE could provide a bullish case for crude oil, China's determination to prevent a property bubble and concerns about the European economy, especially the peripheral region, will weigh on sentiment.

Gold AT 1317$

Gold continued its seemingly inexorable advance this week, reaching a new nominal record high of $1313.45 an ounce on Wednesday. Gold is heading for a tenth consecutive year of annual gains, the longest winning run since 1910. Bullion dealers Kitco International commented that 'most of what we have witnessed in the complex during the month has been clearly based on perceptions of an inevitable second chapter in Fed accommodation'. [1] Speculation surrounding possible additional stimulus measures in the US has increased following a barrage of weak economic data from the world's largest economy. Tuesday's readings of consumer confidence and manufacturing indices point to a stagnating US economic recovery, and the inflationary possibilities raised by a return to quantitative easing (QE) have driven investors towards the safe haven of gold. A poll of bankers, gold miners and analysts meeting at this year's London Bullion Market Association conference forecast that gold would reach $1450 an ounce during 2011, a 10.5% increase from current levels. The bullish mood surrounding gold has also been stoked up by news that central banks, led primarily by Russia and Asian governments, will become net buyers of the precious metal after two decades of net selling. Credit Suisse observed that 'it's quite possible that if there are any further upsets in either the currency markets or the rates markets ... we could get another leg higher and then we'd be looking at the next upside target at $1330'. [2] Holdings in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, climbed by five tonnes on Tuesday, while buying in India rose on Wednesday as the strength of the rupee helped to shield local buyers in the world's largest democracy.