Hard commodities weakened across the board, hit by global economic concerns and worries a potential clampdown on speculation in U.S. energy and commodity trading could hurt buying of the asset class.

Spot gold slipped to a low of $915.20 an ounce and was bid at $918.00 an ounce at 1414 GMT, against $923.30 an ounce late in New York on Tuesday. Meanwhile platinum was at $1,109 an ounce from $1,132, having touched a low of $1,099.

The dollar climbed broadly as growing risk aversion prompted buying of the precious metal as a safe store of value. The U.S. unit, weakness in which boosts gold’s appeal as a currency hedge, is currently the metal’s chief driver.

“In the last few weeks, the relationship between gold and the dollar has been fairly slavish,” said Stephen Briggs, an analyst at RBS Global Banking & Markets. “But gold has even been underperforming that, if you look at the euro price.”

He said seasonally weak demand in the third quarter and a tailing off in investment buying are also pressuring the metal.

Gold buying in India, the world’s largest bullion consumer, was weak as the dollar strengthened against the rupee, making the metal more expensive for local consumers.

Meanwhile gold jewellery sales in Dubai were down 30 percent in June from a year earlier, as high prices and the economic downturn hit buying.

U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange slipped $10.70 to $918.40 an ounce.

CAUTION

On the wider markets, sentiment was cautious, with European shares falling for the fifth straight session. The losses reflected a slide in Wall Street stocks to a ten-week low on Tuesday, amid fears over economic weakness.

Deutsche Bank analyst Michael Blumenroth said stock market weakness could be seen as a sign of fresh trouble to come for the economy, which may prompt further gold buying later in the year.

Industrial commodities slipped amid doubts over the outlook for the global economy, with both oil and industrial metals trending lower. The more industrial precious metals — platinum, palladium and silver — all posted losses.

News the U.S. futures market regulator, the Commodity Futures Trading Commission, was considering a clampdown on excessive speculation in commodities by restricting holdings of big players also hurt prices, dealers said.

“The CFTC announcement is definitely putting some pressure on metals, as well as on energy,” said one European precious metals trader.

The news prompted speculation that the approval of proposed U.S. platinum and palladium ETFs could be delayed until the CFTC had finished its deliberations.

“We do wonder whether the proposed U.S. listing of platinum and palladium ETFs – under consideration by the SEC at present – can possibly be approved until the CFTC’s investigations are concluded,” UBS strategist John Reade said in a note.

Palladium was at $234 against $239. Silver fell below $13 an ounce for the first time since May 5 to hit a low of $12.91. It was later at $12.95 an ounce against $13.10.

LONDON, July 8 (Reuters)

Private-client brokers have been having a torrid time of late but ICAP is in a different space entirely. As the middle man in institutional investing — from bank to bank – ICAP has been benefitting greatly from the volatility in world markets.

The firm unveiled a 31% increase in full year figures. Profits for the year ended 31st March were £330.2m against £251.6m the year before, more than £10m ahead of analysts’ guesses. Revenues came in at £1.3 billion, 18% ahead of estimates.

As a handy result of ICAP’s diversification across financial markets their balance sheet serves as a rough proxy on where the action is. Unsurprisingly, foreign exchange and commodity trading led the volume figures… punts on the soaring price of oil and the dwindling US dollar will likely have topped the order books.

The group also tipped the market that a spate of debt-based buyout bids could be on the cards. “The current environment offers many attractive opportunities to acquire businesses. ICAP is well-placed to make further acquisitions and fund the development of the group using its existing financial capacity,” said Michael Spencer.

Spencer also took the opportunity to put to sleep the idea that ICAP would merge with a larger rival. “We are not involved in any discussions or negotiations on that front,” said the ICAP boss. This announcement will probably take a little bit of the air out of the share price, but makes good business sense… deals done in this economic environment are unlikely to bear the same premiums as those just one year ago.

ICAP’s castle protected by moat

ICAP balance sheet has a nice consistency to it. It has what Warren Buffett might describe as a wide economic moat surrounding it. Economic moats are the competitive advantage that one company has over another. The moat’s width represents the sustainability of the advantage and hence the sustainability of revenues.

Revenues at the broker have grown while earnings growth has been double-digit for three years on the spin and the group anticipates this trend to continue. We estimate that the underlying annual growth rate of industry revenues, in the medium term, will be more than 10 percent,” said Spencer.

The firm’s position, particularly in international debt markets, is comparable with that of a natural monopoly. And the thing about natural monopolies is that they are quite good at holding onto highly expensive share prices. When the London Stock Exchange was in its prime and a member of the natural monopoly club (circa 2006), very high valuations were attached to the group. Now this also as a result of the bidding frenzy surrounding the LSE, but looking at international rivals — CME and NYSE Euronext – the exchange biz had buyers pouring in.

Dealers like ICAP – a business not far removed from the exchanges – are performing strongly. Furthermore, the broker’s business model is a lot more flexible. Unlike the LSE, the long-term health of ICAP is not tied to a single asset class. Hence, the firm’s outperformance coinciding with rank underperformance in the equity markets is not a big surprise.

Stocks out of favour

As we discussed yesterday, the retail investor market is struggling to cope with the general apathy in equity markets. In fact, the only wing of the sector is spreadbetting, where market leader IG Group was reporting good trade amid the volatility. ICAP, not one to miss a trick, has a foothold in this prosperous market too — as they own UK spreadbetter City Index.

Volatility is no good for a long-term investor, and for the conviction to come back, so must the upward trend. But the recent rally in stocks is nothing to take heart from. We may be trading just 6% below recent peaks but the credit crunch is far from over and if you look closely enough you can see why.

Nobody is driving this bull-run.

Trading volumes are so low that brokers, like ICAP, are not just facilitating trading, they’re driving market direction. And they’re not moving them based on the direction of the wider market’s trades, but on their own estimations of sentiment… a recipe for status-quo.

That’s why this rally is a phony. As nice as 6,000 plus FTSE levels are, price is only one element of a powerful pair that drives the trading world. Volume completes the set and volume is nowhere near where it should be. Low levels – and yesterday the average hit it’s lowest point for 2008 – suggest that real the smart money is still on the sidelines.

This upswing has not yet been stress tested. When the big guns come back we will be able to see the true recovery of the UK stock markets. And with earnings season coming to a close, that time could be very soon. In the meantime, recession proof stocks like ICAP look like a good trading idea.

Theo Casey

Source: ICAP Cashes In On Market Misery