The big news of last week, the US government shutdown, has been engaging the attention of not only politicians but also businesses and markets. The debt ceiling issue is also looming and there is expectation of an agreement on the issue; if achieved it will boost the US business confidence.

As for commodity markets, despite some catalysts for upward price movement, gold has failed to benefit from the shutdown or reassert its haven status. Delayed tapering of QE has also not really benefited the yellow metal. Simply put, investor interest in this commodity has been subdued this year with sluggish demand growth contributing to reduced interest. Base metals have largely remained range-bound. On the other hand, calming of geopolitical tensions of recent weeks has meant a correction in crude oil prices. Following the shutdown, CFTC data release for the week may not materialise.

The week that went by was a mixed one for commodities. In the London market, precious metals were the worst hit. Gold was down 2.3 per cent in value, while palladium was the worst performer with a price decline of 2.6 per cent followed by platinum with a loss of 2.1 per cent. Silver moved up marginally over the week. The LME base metals complex was generally soft. Lead and zinc were down 2.7 and 1.9 per cent respectively. While copper softened, tin was up 2.8 per cent to end the week at $23,962 a tonne.

As we move closer to the year-end and more data become available from the US and other economies, tapering will surely come to the centre stage. In the event, further corrections in some of the commodities such as gold can be expected. Meanwhile, macro data and demand-supply fundamentals of individual commodities will drive the market.

Gold: losing sheen

The metal has pared much of the gains it enjoyed post-FOMC meeting last month when prices rose as high as $1,370 an ounce. However, it has failed to gain from a host of favourable developments including delayed tapering, the US government shutdown and political uncertainty in Italy. Additionally, the US debt ceiling uncertainty (October 17 deadline) is looming. Gold-backed ETP holding have continued to fall although the pace has slowed. At the same time, a weaker dollar has supported prices from falling further.

The sentiment towards gold has remained hesitant as gross long positions have been scaled back. In the near-term, so long as the dollar remains weak, gold will enjoy support and may trade in a range.

On Friday in London, gold PM Fix was $1,310/oz, down from the previous day’s $1,316. Silver gained marginally to a Friday AM Fix of $21.65 versus the previous day’s $21.57. Platinum ended the week at $1,386 ($1,373) and palladium was unchanged at $706.

Demand conditions in two major consuming countries India and China are reported to be improving. With festival season kicking in and crop harvests in full swing, Indian physical demand is seen supporting prices, although the strength of demand is not remarkable. With prices still hovering around Rs 30,000 for 10 gram and limited expectation of appreciation, buyers have turned cautious.

Metals: Range-bound

Prices have remained largely range bound over the past week. Market participants are looking forward to the LME Week. As if in anticipation, aluminium and copper traded higher on Friday. A close of $1,800/tonne for aluminium meant a year-on-year decline of 8.6 per cent and at $7,232 copper was down 11 per cent year-on-year.

China’s fading growth momentum has become a matter concern for the market even as supplies are improving. Some metals such as copper are expected to fall into a state of surplus by the end of the year. QE tapering decision will also pressure prices down. So, price weakness is likely to extend into 2014.

Crude: on a slip

With dissipation of geopolitical tensions and improvement in supplies, the market is correcting down. In recent weeks, oil has pared close to $10 a barrel. The possibility of a stock build is real. Analysts hold Q4 Brent price forecast at $105 a barrel. There is belief, tapering would have little effect on this market.

(This article was published on October 6, 2013)
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