Financial Daily from THE HINDU group of publications
Thursday, Apr 28, 2005
Financial Daily from THE HINDU group of publications Thursday, Apr 28, 2005 |
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Agri-Biz & Commodities
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Commodity Exchanges Global commodity investors may turn cautious G. Chandrashekhar
Mumbai April 27 , ACROSS commodity markets worldwide, there are apprehensions about the sustainability of current high prices. With global growth concerns still a factor and price levels in many sectors still close to recent peaks, does the market have an upside left? After widespread liquidation in the previous week following tactical exit by funds, the second half of last week saw some bounce back. In addition to consumer buying interest, there remains considerable institutional demand for commodity investments and this is helping provide a price floor on dips in key sectors such as energy and some metals, experts say. According to Barclays Capital, tactical investor length across key commodity markets has fallen to its lowest level since late February last week, suggesting that there is plenty of scope for a rebound in hedge funds buying over the coming weeks. Tactical buyers would however be a lot more discriminating and price corrections would be viewed as buying opportunities, it is believed. "Data showing a very strong rise in investment flows into US mutual funds linked to commodities in March confirms the ongoing high level of interest in commodities as part of pension and other investment portfolios. Net inflows into US commodity mutual funds reached around $ 850 million, the second consecutive month-on-month increase and the largest inflow since last March's $ 1.03 billion," Barclays Capital Research report pointed out adding that anecdotal evidence suggests this inflow has continued at extremely high levels in April and is being supplemented by significant growth in commodity investment in Europe as well. "We continue to view energy and metals prices as being strongly supported by fundamentals and investor buying interest is likely to ensure that price dips in these sectors are short-lived," analysts remarked. Speculative length in the precious metals markets remains large in comparison with other commodity markets. More long positions were added in all major precious metals (except palladium) again in the week ending April 19, although changes were very small. The net long gold funds futures now stands at 114.4 thousand contracts — its highest level since the first week of December, and the net long futures fund position in silver is also at its largest since that time. "Extensive fund length in these markets makes prices vulnerable to long liquidation, which could easily be triggered by any weakness of Euro/US dollar," said Mr Kamal Naqvi, a precious metals analyst. In the short-term, precious metals prices are likely to consolidate with attention focused on the dollar for direction. Gold and silver may now push towards upper resistance but their underlying trend is now in question, the expert added.
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