Are global commodity markets on way to recovery? It may be a little too early to assert; but indications are that the market has discounted or priced in all uncertainties so far.

Last week the oil market gained following renewed hope that the European economic woes may be addressed. For the same reason, the base metals complex rebounded on what experts described as cautious optimism. The LME week sentiment was more upbeat than expected. Investor interest in precious metals seemed to stabilise and physical market demand was supportive as evidenced by prices regaining some lost ground.

Although some hope emerged, there still are no clear or unambiguous signals about the future direction of global growth. European debt crisis is only one of the several uncertainties that dogged the market. Surely, the world needs sustained flow of positive macro data to be able to regain confidence. The latest to join the ‘concern bandwagon' is China's growth.

Gold: The precious metal gained 1.6 per cent week on week. In London on Friday, the PM Fix was at $ 1678 an ounce, up from the previous day's $ 1656/oz. Silver, however, performed otherwise. It lost 0.5 percent in value over the week. Friday AM Fix was at $ 31.82/oz versus previous day's $ 31.97/oz.

The global macroeconomic environment continues to be gold supportive.

The confidence about European situation is still fragile; and therefore, investors are expected to continue to favour the eternal safe haven. Barring need for liquidity, gold is likely to gain strength rather than weaken.

Silver prices continue to remain vulnerable on the downside as fundamentals are not supportive.

Strong investment demand is needed to prop silver prices up; but there are no clear signals yet.

Base metals: Over the week, price performance was mixed. Improving sentiment on the outlook for a solution to the European crisis was somewhat diffused by concerns over possible slowdown in China.

Copper and lead were up 2.5 per cent week-on-week.

On Friday, copper climbed 3.3 per cent with cash price closing back above $ 7,500 a tonne.

Nickel, aluminium and zinc also rose with support from as a small decline in Chinese inflation and robust US retail sales.

LME week provided some clarification.

There was hope the European crisis will be resolved. Asian demand was seen healthy.

Market fundamentals for many metals are seen constrictive.

(This article was published on October 16, 2011)
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