Global commodity markets last week displayed mixed price performance with the energy complex exhibiting relative price strength in the wake of tightness in the physical markets and revival of geopolitical concerns in West Asia.

On the other hand, performance of the entire metals complex was divided with precious metals platinum and palladium rising over the week with 4.0 per cent and 2.4 per cent respectively while gold and silver remained nearly flat.

Base metals showed varying price moves with zinc and tin rising by 2.5 per cent and 3.4 per cent respectively. Softer key economic data from China meant that prices resumed their general downward drift. Indonesia is likely to restrict tin export flow which is set to lend some strength to prices.

Grain markets showed a choppy price trajectory during the week and were largely guided by the severe drought in the US Midwest. From the USDA’s first field survey based report for 2012-13 (WASDE report) which showed supply downgrades it is abundantly clear that global corn, wheat and soyabean balances have tightened further. There is now compelling need for demand rationing to stem the downward trend in inventories. For now a record high price environment is here to stay.

The market participants are now awaiting fresh triggers that can provide direction. The OECD composite leading indicators continue to show slowing economic activity. Although the European sovereign debt issue is still real, it is unlikely to impact the commodity markets more adversely than it has done in the past. Any boost to the market may come in the form some policy action resulting in easing of liquidity. So, developments in the area of geopolitics, policy response to economic slowdown and currency factors deserve to be watched closely. On current reckoning, there is nothing to suggest that the US dollar may face a marked weakness in the near future; nor is there anything to suggest that the rupee would strengthen.

Gold: Prices have managed to stay above the psychological $1,600 an ounce level and continue to trade in the recently established $1,580-1,620/oz range. On Friday, in London, the gold PM Fix was $1,615/oz, edging up from the previous day’s $1,605/oz. Silver followed suit with Friday AM Fix at $28.20/oz versus the previous day’s $27.84/oz.

But the big story of the week in the precious metals complex was the spurt in platinum prices. The metal was the strongest performer during the week with a rally of 4 per cent following escalating violence in South Africa. On Friday, the metal closed at $1,544/oz, sharply up from the previous day’s $1,400/oz. Palladium rose 2.4 per cent on the week to close at $592/oz.

Hope never fades in the world gold market and participants now look forward to FOMC meeting in September which may provide the much-awaited trigger. For that to happen the US macro data have to actually worsen from the current levels; but numbers flowing in point to improving outlook. On the other hand, the physical demand is decidedly soft with serious monsoon concerns in India threatening a fall in rural incomes and by implication demand. So, market participants are at the mercy of the physical market and resilience of ETP holdings.

The latest World Gold Council demand trends report highlights that global gold demand in the first quarter of 2012 was down 7 per cent year-on-year at 990 tonnes. Challenging global economic climate has had its impact. While central bank buying has been going on, demand in jewellery, investment and technology sectors has weakened. During the April-June quarter, imports into India, the world’s largest importer, more than halved to 131 tonne from 301 tonne last year as unaffordable prices and weak currency compressed demand.

Base metals: The complex continues to be at the mercy of policy action in major consuming markets such as China and the US. Given the current weak sentiment but continuing expectation of improvement in economic activity in the second half of the year means the market remains vulnerable. There will be bouts of short covering.

According to an expert report, base metals prices rallied on Friday after upbeat consumer confidence data from the US and supportive comments from German Chancellor on fighting the eurozone crisis.

Crude: Prices have continued to maintain their upward momentum, driven by a variety of reasons. The front-month Brent crossed the $115 a barrel mark. Tightness in the physical market continues while geopolitical concerns are rearing their head once again.

Flow of macro data is sure to impact the market price movement.

(This article was published on August 19, 2012)
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