Gold loses glitter; prices likely to come down further

For the global commodity markets, February was not a particularly impressive month.

There was large-scale sell-off mid-month following hawkish interpretation of the FOMC minutes for January which suggested that the asset purchase program in the US could end soon.

For markets which are largely liquidity-driven, it was enough to trigger a sell-off. However, Fed Chairman Ben Bernanke has subsequently made it clear that the Fed is set to continue with significant asset purchases in the coming months.

Additionally, China factor came into play. Chinese trade data are not really inspiring although there are no signs for serious concern. Business confidence in China is said to be dipping. Fresh curbs have been imposed on the property market.

In the event, appetite for consumption of commodities would continue. Meanwhile, global business confidence has crept up slightly, but the global economy is still far from firing on all four cylinders, as an expert observed. The mid-February sell-off meant that all major base metals and precious metals prices ended the month below levels at which they entered 2013.

Over the week, base metals were down with aluminium losing 3.6 per cent and zinc 3.5 per cent in price. Other metals in the complex declined too, except tin.

All precious metals were down week-on-week except gold that gained marginally by 0.4 per cent, while silver was down 2.7 per cent, platinum down 2 per cent and palladium down 1.5 per cent.

Crude oil markets extended their downward drift during the week. Front-month Brent moved back to around $111 a barrel.

Gold: Bearish trend

Prices continued to stay under downward pressure as waning investor interest and weak physical demand prospects despite falling prices have combined to dictate the sentiment. Investors are exiting the yellow metal in hordes. The US spending cuts are expected to lend further strength to the dollar which in turn is likely to pressure gold further down. In London, on Friday, gold PM Fix was at $1,582 an ounce, down from the previous day’s $1,589. Silver too weakened with Friday AM Fix of $28.01/oz versus previous day’s $28.95. Platinum again fell below gold to a Friday PM Fix of $1,579. Palladium was $721. Going forward, the yellow metal is likely to wage a losing battle to gain upward traction. With equities market improving, there is an exit from gold. Falling dollar prices of the metal may encourage physical consumption. But in the largest market India, the Government continues to show its negative bias towards the unproductive asset. Fortunately, in the Budget released on February 28, gold was spared from any further fiscal levy. According to technical analysts, gold is under pressure; but the greater view remains bullish given the important support in the 1,485-1,520 area. Gold will face resistance at 1,625 and then at 1,605.

Metals: awaiting triggers

The sell-off in base metals continued last week, led by nickel and aluminium which fits with their comparatively weak fundamentals. Friday, on the LME, aluminium (cash) closed at $1,932 a tonne, copper at $7,673 and zinc falling below $2,000 for the first time since January this year to $1,998. Experts see further downside potential for these metals. Copper mine production is improving; so is refined production. Importantly, what happens in China’s political firmament could be a game-changer. Technically, copper faces resistance at 7,930 and 7,840, while support is seen at 7,650 and 7,500. Base metals will remain under pressure until new triggers appear.

Crude: Balanced

Prices extended their downward drift last week, with front-month Brent moving back within the previous range around $111 a barrel. Geopolitical concerns have somewhat faded, but still lurk in the background. Market fundamentals continue to remain well balanced. Non-OECD demand is rising. Chinese crude imports in January were close to record levels at 5.9 million barrels a day.

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