Gold prices are likely to continue to be moved by the dollar. If we look back to history, it is one of the most powerful moves since the euro creation and could stop strengthening in the coming weeks. Technically we need a daily close above $850 for December gold for a test of $900. For this week as long as the $822 channel support is not broken down we maintain our bullish view.

We still like copper despite the market sell off as we expect a market deficit for the sixth time in seven years in 2008.Id we acknowledge that the current downtrend which points to a possible test of 290 for copper December, we believe that lower copper production will drive prices higher during the fourth quarter of 2008.



Oil

It is the possibility of a grade three hurricane that dominated last week's close and looks likely to dictate the week ahead, as the market awaits further news.

The week before last, DOE Inventories were marked by large crude builds versus bullish petrol draws, while last week's numbers were more lacklustre. Crude stocks came out with a small draw while the petrol draw came out below expectations.

Still, even with storm Gustav brewing in the background the demand indications remained bearish. US refining margins are healthier relative to earlier this summer, while higher crude imports are still likely, subject to the effects of the storm and US refineries will soon enter into a period of autumn maintenance. Crude inventories are expected to build strongly and we will see some of the strength in the front of the WTI curve to wane.

Energy traders waited with bated breath to see whether Storm Gustav developed into the force 3 Hurricane some commentators predicted, while speculators traded on any possible post hurricane implications. Hurricane Katrina and its devastating consequences, which hit the US and reverberated around the World in 2005 are still fresh in people's minds.

What does it mean for the oil and precious metals market? The Gulf of Mexico installations were obviously the primary concern and oil prices could spike dramatically. If we do see the storm develop into a hurricane, 85 per cent of the Gulf's oil and natural gas production could be shut, we could see over one million barrels oil production disrupted and by Monday we could witness an oil spike towards $130 and natural gas to $10 or more.

However that said, this time prices could be more contained because the picture is less bullish, due to fundamentals that are pointing to lower oil prices as the world's economies continue to slow. In addition, the market turned bearish on Thursday following the large Natgas storage build and the US Department of Energy announced that it stands to tap the nation's Strategic Petroleum Reserve in the event of Gustav causing a severe production disruption. Forecasters were meanwhile claiming that any damage to off-shore platforms would not last long so we have been extremely cautious on jumping on rallies too quickly.

What we can definitely expect to see is an increase in volatility and we prefer to trade oil only in the short term. Thursday saw Tropical Storm Gustav's threats to the oil and gas infrastructure in the US Gulf of Mexico pushed to the background, in the face of the surprisingly big build in US natural gas storage which put sharp pressure on the entire energy complex, oil lost $6 and natgas a full figure. Traders were caught long and some short covering emerged. Despite some possible dips below $100, crude oil is likely to stay in triple-digits over the next several quarters. Opec is in a good position to defend the oil price should it threaten to sink below $100/bbl.



Metals

Looking at relative value trades, Palladium has been the hardest hit of the metals, declining more than 50 per cent since February 2008. It can be interesting either to trade it as a long outward position for the bravest, with the 350 area as first target – trading now at 300-or as a relative value trade vs platinum. In the same vein silver along with industrial metals have been sharply sold off among the precious metals and while these metals can trade far off from their mean, we believe the current level is interesting vs gold as further divergence seems limited.


- The author is a strategist with Saxo Bank