Gold loses haven appeal, Palladium may pick up momentum

‘Will the Fed or won’t the Fed’ – the pendulum of uncertainty has kept swing in recent months. Last week was no different. Based on statements by high ranking Fed officials, observers have now begun to believe, tapering of the $ 85-billion a month asset purchase may begin by March 2014.

Of course, employment data would be a crucial driver of the decision to taper; but concerns over the bloating Fed balance sheet have also begun to mount. So, it is going to be tough call either way.

On Wednesday, gold in London fell to $1,240 an ounce, just about 5 per cent above the low of $1,180 recorded towards end-June this year.

Commodity producers, industrial consumers and traders and investors are in any case bracing themselves for the inevitable (tapering of QE) to happen at some stage.

Meanwhile, demand expectations are improving for most commodities, driven by expanding global business confidence and signs of improvement in industrial activity.

Steel, a growth-driven commodity is a case in point. Crude steel output is an estimated 1,581 million tonnes this year. Demand indicators are improving. Inventories in many regions have fallen to low levels. Low capacity utilisation has weighed on steel prices. “The prospect of global steel looks promising in 2014,” experts assert pointing to firming prices that indicate growth in demand.

China, which is known as the mover and shaker of world commodity markets, has been facing some slowdown in recent months. Reports suggest Chinese imports of energy products (mainly crude) and metals may be moderating as growth outlook remains soft and most domestic markets are well supplied.

Analysts also point out that despite sluggish global growth rate exacerbated by slowing Chinese economic growth and consumption growth rates, demand for commodities has not been as badly affected as earlier feared. Demand growth is speeding in palladium and nickel. On the other hand, agriculture commodities present a mixed picture. In 2012-13, higher prices for corn and soyabean (caused by severe US Midwest drought) hurt demand. However, bigger harvests worldwide in 2013-14 currently expected suggest consumer-friendly lprices and a big rebound in demand ahead.

Last week, in London, prices of all precious metals fell with silver losing 3.4 per cent and gold 3.2 per cent in value over the week. Platinum was down 2.9 per cent and palladium 1.1 per cent.

Among base metals, LME cash copper gained 1.4 per cent, but others edged slightly higher or lower. Oil WTI gained 0.9 per cent. Going forward, macro data including US employment data and the dollar value would continue to influence world commodity market sentiment. If growth signals pick up further momentum, equity markets surge and dollar strengthens, it would prove positive for growth-driven commodities such as crude and copper while speculative bets on gold will shrink.

Gold losing lustre

The metal continues to languish well below $1,300 and in the vicinity of $1,250/oz. Physical demand, especially in the world’s largest import market India, is weak. Worldwide, investors continue to exit the metal as they see no prospect of a price gain.

In London on Friday, gold PM Fix was $1,246, up from the previous day’s $1,240. Silver was down on Friday with AM fix at $19.93 versus previous day’s $19.97. Platinum closed at $1,396 extending its premium over the yellow metal. Palladium closed at $721 ($715).

For gold, the only saviour at the moment seems to be China. There is hope and expectation that ahead of the Chinese New year, physical demand for gold will improve.

Metals bearish

Prices have been under pressure recently. Nickel and aluminium prices have sunk close to year’s lows.

But analysts point out that the weak sentiment is not supported by fundamentals. They point out that LME inventories for most base metals are either flat or falling, market balances are tightening and Chinese demand has surprised to the upside.

Copper is heading for its third strongest two-year global demand surge in more than 20 years, they added.

At the same time, supply disruptions following Typhoon Haiyan in the Philippines and Indonesia’s prospective ore export ban in January 2014 have caught the attention of the market participants.

According to International Nickel Study Group, the refined market was in surplus of 127,000 tonnes in the first nine months of the year, much higher than the record 96,000 tonnes surplus in 2012.

LME stocks are also building. China’s production and consumption of nickel are growing strongly. No wonder, the nickel market remains bearish.

On LME, cash copper gained 1.1 per cent on Friday to close at $7,098/tonne. Aluminium closed at $1,738 and nickel $13,492.

Technical picture suggests bullish momentum for copper. Resistance is seen at 7,100 and 7,080 while support is seen at 7,035 and 6,900.

(This article was published on November 24, 2013)
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