Last week, witnessed some landmark events with Japanese central bank (Bank of Japan) undertaking an unprecedented and aggressive decision to fight deflation so as to reach the goal of sustained two per cent inflation through ‘quantitative and qualitative monetary easing’, while in Europe, the ECB left the policy rate unchanged at 0.75 per cent despite data signalling that the recession continues.

In the US, on the back of the latest jobs data, there is still widespread expectation that FOMC may keep buying assets at a steady pact this year.

According to the Bureau of labour Statistics, US, the world’s largest economy, added 88,000 jobs in March. This was far below the market expectation of 1,90,000 jobs, and the lowest monthly increase since June 2012. Experts point to some good news in the form of upward revision in January and February data to 1,48,000 (+29,000) and 2,68,000 (+32,000) respectively which highlights the possibility that the US economy had slowed dramatically.

Similarly, a fall in the unemployment rate to 7.6 per cent from 7.7 per cent seems to owe more to a shrinking labour force than any underlying improvement.

China continues to engage the attention of global commodity market participants, especially players in the base metals and industrial metals market. Steel demand in China, the world’s largest steel producer and consumer, is looking strong, with experts seeing further decent data-points in the second quarter of the year.

Commodity prices posted broad-based downward moves last week. The oil complex exhibited weakness as the crude oil markets edged lower with the front month Brent contract touching a fresh low for 2013.

Again, the base metals complex remained under pressure with a majority of the complex trading at multi-month lows. The sell-off that began in mid-February continued.

Week-on-week, base metals declined across the board except zinc which was marginally up, but nickel (-4.3 per cent) and lead (3.5 per cent) were underperformers.

Precious metals were no better, although silver put up a stellar performance gaining as much 5.8 per cent over the week; but gold was down 1.9 per cent with the safe haven effect of Cyprus events petering out amid sell-off. Experts pointed out that Q1 2013 was the weakest quarter on record for gold ETP flows.

Going forward, uncertainties are likely to continue even as more solid evidence of global growth is necessary for growth-commodities such as crude and copper to rally.

Geopolitics has receded somewhat into the background which should keep the crude market in leash. Gold is expected to continue to struggle to find upward traction even as equity markets show improved performance and the risk-on environment triggers a sell-off in safe haven assets.

Gold

Unable to resist the unfriendly sentiment, prices dipped below $1,600 an ounce and then below $1,550/oz last week, trading at levels last seen in May 2012.

However, on Friday, the metal rallied by as much as $20 an ounce as the optimism over the outlook for the US economy waned somewhat on the back of employment data and by implication the possibility of liberal monetary policy continuing.

In London, gold gained 1.4 per cent to Friday PM Fix of $1,568/oz from the previous day’s $1,547/oz. Silver too gained 0.6 per cent to a Friday AM Fix of $26.97/oz.

While platinum was at $1,531/oz, palladium shed 2.3 per cent to close at $720/oz.

For gold, Asian physical demand has provided some support, but ETP outflows have once again accelerated after stabilising following the events in Cyprus. One can expect prices to remain range-bound, finding support from the physical market and central bank buying on the downside in the near-term.

Gold clearly misses a catalyst for a significant upward momentum.

Among precious metals, experts believe, while palladium has the most constructive fundamentals, over the coming months, platinum offers the most potential upside in the second half of the year, aided by supply challenges and improvement in underlying demand.

According to technical analysts, gold will face resistance at 1,615 and 1,590 while support is seen at 1,540 and 1,520. The latest uptick in gold provides relief toward the 1,590 area; and above 1,622 is needed to prevent a dip toward 1,520.

Base metals

The last 6-7 weeks have witnessed steady sell-off in the base metals complex. Admittedly, growth concerns linger and European recession continues, although the US data provide some hope. China is the market everyone is closely monitoring, especially the new political dispensation.

On Friday, on the LME, aluminium closed at $1,851 a tonne and copper at $7,377/t.

Copper seems to be facing a major loss of confidence as inventory build up has been rapid, while demand is stable. In the upcoming meeting in Chile, copper related issues will be discussed including market fundamentals, supply growth, inventory status as well as Chinese demand and import pattern.

Going forward, there is expectation that Q2 may offer some evidence of at least modest tightening in Chinese market fundamentals which should provide some stability to prices.

According to technical analysis, copper faces resistance at 7,655 and then at 7,520, while support is seen at 7,310 and then at 7,215. Near-term basing signals in aluminium, zinc and lead suggest a pullback in range before resuming lower into new lows for 2013.

Crude

While the market fundamentals continue to remain balanced, the geopolitical environment has become more placid. The recent range trading is expected to continue. Technically speaking, below 91 in WTI crude would make one more bearish, while a close below 104 in Brent risks the 103 area.

(This article was published on April 7, 2013)
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