Global commodity markets exhibited diverse price action last week with growth signals picking up momentum but not strong enough as yet for a sustained rally. Fundamentals are surely to the fore. Supplies are somewhat hassle-free amid tepid demand conditions.

No wonder price moves varied across the commodity complex with crude oil drifting higher, moving above recent tight trading ranges while the base metals complex was largely range bound over the week. Tension between macro and micro factors continue to limit any sustained periods of directional trend, an expert commented. Investor confidence in the metals complex is decidedly absent. Over the week, zinc and lead were up 2.2 per cent and 2.5 per cent respectively.

As for precious metals, platinum prices closed the week much ahead of gold. Both gold and silver lost some lustre with prices down by 1.7 per cent and 0.8 per cent respectively over the week. Strong dollar, rising equity market and poor physical demand continue to haunt gold bulls. Increase in the rate of customs duty (from 4 per cent to 6 per cent) on imported refined gold by the Government of India is likely to make the yellow metal more expensive in the local market. Other restrictive measures may follow, it is widely believed.

Going forward, the commodity markets are at the crossroads. Sustained flow of positive macroeconomic data is sure to improve the sentiment and attract more investor interest which at the moment seems to be waning. While crude markets are fairly well balanced, base metals are generally in surplus. Agriculture markets have the potential to soften provided the weather stays benign.

Gold – bearish

The market has been under pressure for some time now; but last week saw a small recovery helped by a weaker dollar, central bank buying and some physical market support. Importantly, ETP flows have remained tepid. Investor interest is not exactly robust. Physical demand is still soft. All these provide key downside risk to gold prices. Silver fundamentals are weak but prices are currently supported by investor interest. ETP inflows are healthy.

In London on Friday, gold PM Fix was $1,660 an ounce, down from the previous day’s $1,671. Silver followed suit with Friday AM Fix at $31.56 versus previous day’s $31.85. Platinum PM Fix on Friday was $1,678.

According to technical analysts, the momentum for gold is bearish. Resistance is seen at 1,696 and then at 1,676, while support is seen at 1,650 and 1,625. Gold and silver continue to slide to range lows near 1,640 and 30 respectively. This may generate buying interest. Palladium breaks bullishly, targeting the channel highs at 758 while platinum stabilises above 1,660. The medium term outlook is said to be bullish.

Drifting metals

The complex is impacted by fundamentals which generally point to a surplus. No wonder prices have been range bound with a slight downward bias. Chinese December data have raised some hope that demand conditions can improve in the coming months. Macro data from the US too have to remain supportive. Much hope is placed on continued stimulus from the Chinese government over the coming months which will stimulate growth and commodity consumption. According to experts, a lack of production discipline has kept the aluminium and nickel markets in surplus for some time. There is now some speculation whether producers will cut production.

On Friday, at $7,998 a tonne, LME cash copper closed a tad below the psychological $8,000. Aluminium market has been under pressure due to surplus. The metal closed at $2,011.

According to technical analysis, base metals are languishing in the short-term as buying interest evaporates. So far there has been no chart damage suggesting a strong move lower. Copper and aluminium present a modestly bearish picture to range lows. The medium term outlook is said to be neutral.

Crude: Upside seen

The front month Brent contract edged higher last week, moving out of its narrow trading band and posting a fresh 3-month high. Technically, there is a small upside potential for prices.

(This article was published on January 27, 2013)
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