Global commodity markets faced one more week of choppy price movements amid a macroeconomic backdrop that became increasingly unpredictable, oscillating between guarded optimism and hopelessness.
Obviously, political gyrations in the Euro zone took centre-stage which eroded the confidence of market participants. The biggest worry was the potential for contagion to spread from Europe. Heightened fundamental and geopolitical risks are fighting for influence against the escalation of sovereign debt concerns, was a succinct observation of an informed analyst.
Volatile conditions prevailed in the crude oil markets with developments in Europe impacting sentiment, pushing constructive fundamentals to the background. WTI was up 4.8 per cent week-on-week. The WTI/Brent spread has been narrowing. The base metals complex was generally down during week-ended November 11, although prices recovered on Friday when news flows from Europe were less disturbing. The market was also concerned about a weakening picture of Chinese demand.
Gold managed to retain its level well above $1,700 an ounce, gaining 1.4 per cent week-on-week, while silver suffered 0.5 per cent during the same period. Platinum regained the $1,600/oz level. Investment flows remained healthy which led gold prices higher.
Iron ore prices have again begun to climb. Smaller Chinese mills are said to be restocking after continual decline in inventory levels. So, the potential for a further increase in prices looks real. The first target could be $140 a tonne gradually rising to $150.
For the commodity markets, the coming days will continue to be unpredictable and exciting. Looking at overall market conditions and sentiment, it may be generally asserted that in the global commodities complex, base metals run a downside risk because of growth uncertainties while precious metals have an upside potential because of the supportive financial market conditions. In energy, the downside is limited by low crude oil inventories and approach of northern hemisphere winter; so a small upside possibility exists.
Gold: With market focus firmly on developments in Europe and associated uncertainties, precious metals rallied for the most part during the week. The yellow metal stayed above $1,700/oz and was up 1.4 per cent week-on-week, with London PM Fix at $1,773/oz on Friday, from the previous day's $1,756/oz. Silver too moved up in tandem on Friday with AM Fix at $33.77/oz, from the previous day's $33.71/oz.
ETP net inflows were a healthy 20 tonnes in the last few days. Seasonal demand is seen helping support gold prices. Silver is seen struggling to break above the mid-30 levels. While physical demand in large consumer countries such as India and China supports the market at every price dip, weakening rupee and volatility are seen making investors cautious in our country. The bullion market will continue to remain volatile until conditions in Europe stabilise.
According to technical analysts, the 1726 area will underpin a move higher towards 1840 target area in gold. In silver, a break above the 35.70 range highs will confirm further upside towards target in the 36.90 area. Medium term outlook is bullish.
Base metals: Uncertain macroeconomic conditions, unresolved European debt crisis and concerns over Chinese demand combined to weaken the outlook. Barring aluminium (gain of 1.2%), other metals (copper -3%) and nickel (-4.3%) ended lower over the week. LME stocks of copper and tin were drawn-down.
Clearly, the market is deeply concerned about possible contraction of demand in Europe. In the event, short-selling cannot be ruled out. Even if Chinese data continue to be supportive, the upside potential of prices looks restricted. For metals prices to begin to recover, the European situation must provide evidence of stability.
According to technical analysts, aluminium range may resolve to the downside with a break below 2095 confirming a move towards 2040 target. As for copper, a move below 7300/7350 opens up the 7165 gap before one could look for an interim base. Range bound trading is the outlook in the medium term.
Crude: Markets went through a volatile week with developments in the euro area impacting price movements. OPEC's World Oil Outlook made a large upward revision to the 2015 oil demand level and raised its oil price assumption by $10.
The IEA's World Energy Outlook followed suit by raising baseline demand estimates and price forecasts though a bit conservatively.
Technically, there is reason to be bullish about WTI with a move towards 99/100 area within reach. The WTI/Brent spread is narrowing and may soon reach $14 and then $12 area. One can look for a close over 115 in Brent which will be a bullish signal for a move towards 120.