Across the broad, global commodity prices eased last week amid flow of weak economic data. No wonder, growth-driven commodities were all affected.

Crude oil markets saw prices drift lower most of the time last week. All base metals except zinc were down over the week, while all precious metals lost value except silver.

Grains prices were mixed last week with focus moving away from corn and soyabean to wheat as there was speculation if Ukraine would ban exports.

China’s September data were mixed for commodities.

Oil demand showed a rebound to a record 9.7 million barrels a day from the lows of August.

Across base metals, copper imports were stronger. Appetite for precious metals was much softer. While silver imports fell for the 24th straight month, platinum imports fell for the first time since April.

According to analysts, the September macro data from China painted a consistent picture of a pickup in economic activity on the back of recovering domestic as well as external demand. Activity data improved across the board, pointing to stabilising growth in the second half of 2012 and allaying fears of a hard landing as real GDP increased in Q3 as compared with Q2. On China’s agricultural import front, September data showed mixed trends. While sugar imports set record highs, wheat imports showed notable strength. Soyabean and vegetable oil imports were higher on the month. Cotton and cocoa imports declined.

The world continues to be worried about weak growth signals. However, the US macro data may provide some silver lining even as concerns over China are lessening. Sustained flow of positive macro data would help boost confidence. Currently fundamentals have taken a backseat and sentiment rules.

Gold: The market continues to struggle. Prices have surrendered much of the gains made in the wake of QE3. Last week, gold prices dipped below the psychological $1,700 an ounce but the dip was short-lived. The strength of the dollar resulted in some profit-taking in the metal. The risk appetite is weakening. Investor interest has shown signs of fatigue. Speculative positioning has fallen.

In London on Friday, gold PM Fix was $ 1716/oz, unchanged from the previous day. Silver AM Fix was $ 31.67 down from the previous day.

The big question is whether the physical market will support gold. Despite favourable macro setting, the yellow metal has not garnered sufficient investor interest. So, support must come from the physical market which is facing tough conditions because of exceptionally high rates in price-sensitive consuming markets such as India.

Many are hoping that festival demand (Diwali) in India will support prices in the short-term. The market is likely to remain range-bound for some time until some fresh trigger is available.

According to technical analysts, silver looks bullish and is looking to a move toward 33.5 after which toward the 35.4 highs.

Gold also looks bullish and one can expect buying interest near 1665 which would underpin a move back toward the 1800 highs, they say. The medium term outlook is said to be bullish.

Base metals: The outlook for base metals demand continues to engage the attention of market participants. With weak global growth data and sentiment, prices have been under intense pressure. China as the mover and shaker of the base metals world is of course the focus of attention. While uncertainty over its growth trajectory remains, the sentiment seems to begin to improve.

For 2013, many analysts are forecasting solid production growth and surpluses. So, fundamental will rule the market in the coming months. In particular, aluminium market is clearly looking bearish with Chinese producers most unlikely to cut back output. On Friday, in LME, copper closed at $7,820 a tonne and aluminium $1,890/t.

Technically, signs of a base are reappearing in aluminium. Closer to 1,900 weakness would fade and a move back toward the 2060 area.

Copper also looks for signs of a base as it nears the 7750 area. The medium term outlook is said to be bullish.

Crude

Prices have drifted lower. Geopolitical risks still continue to build in the backdrop and provide support from a price collapse.

According to experts, the current situation is torn between poor economic prospects on the one hand and supportive fundamentals and geopolitical complexity on the other. So, while the upside does not look too promising, serious downside risks are ruled out.

(This article was published on October 28, 2012)
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