Diverse price performance was the feature across the global commodity markets last week - covering energy products, base and precious metals as well as agriculture. Brent crude continued to rise with the prompt contract rates crossing levels last seen eight months ago, spurred by a combination of improving macroeconomic sentiment and intensification of geopolitical concerns.

The metals complex was rather diverse with most base metals registering a price fall except zinc that was up 1.2 per cent and copper nearly unchanged, while precious metals generally retained their upward trajectory with platinum (up 1.6 per cent) the real performer. Gold was unchanged week on week, while silver edged slightly higher.

For improved price performance of the global commodity markets, it is imperative that economic growth signals intensify in a sustained manner. The strong positive correlation between global growth and commodity consumption (especially energy and base metals) is of course well known. Agriculture markets have already begun to take cognizance of the improved crop prospects in the southern hemisphere and anticipated rebound in production in the northern hemisphere in the coming months. On its part, the dollar may have weakened against the euro in recent weeks; yet the greenback’s potential to rebound is undoubted. So, participants are in a wait-and-watch mode in respect of most commodities.

Gold lacks sheen

Across the precious metals complex, platinum and palladium have continued to outperform gold and silver. In particular, platinum has had a spectacular run, overtaking gold prices with a current premium of nearly $50 an ounce. The precious metal is likely to test $1,740/oz last seen in September 2011.

Gold, on the other hand, has been lacklustre with prices struggling to break higher but facing huge resistance as investor interest is tepid. If anything gold’s haven status is now shaky in a risk-on environment where equity markets have begun to perform better. Ahead of China’s lunar New Year, gold volumes on the Shanghai Exchange have softened although still quite strong.

Physical demand is showing some signs of pick-up with the Indian rupee firming in recent days. However, with return on investment in gold turning unsure and the Government policy measures threatening to constrict the appetite for the yellow metals, the physical side is unlikely to be of any significant support.

Speculative interest is already beginning to show signs of waning. Speculative positioning in the exchanges is rather light. On the Comex, positioning in gold has been scaled back and is currently at its lowest since August last year. However, Comex silver positions picked up last week, but they are still at half of their peak.Palladium is seen as the precious metal with promise. Analysts are sanguine about positive view on palladium with most constructive fundamentals among precious metals, with a deficit estimated at over 600,000 ounces.

On Friday in London, gold PM Fix was at $1,668/oz, unchanged from the previous day. AM Fix for silver was at $31.52 versus the previous day’s $31.75. Platinum surrendered some gains with Friday PM Fix of $1,714 down from the previous day’s $1,736. Palladium followed suit with Friday PM Fix of $746 compared with $765 the previous day.

According to technical analysts, range trades are pauses in bull trends and the momentum is bullish for gold. Resistance is seen at 1,700 and at 1,683, while support is at 1,652 and then at 1,620.

Bearish base metals

Zinc, the strongest performer of the week gained 1.2 per cent while nickel prices fell 1.7 per cent. Friday, on LME, aluminium cash closed at $2,080 a tonne and copper at $8,260.

Experts think the rally in base metals prices may have peaked. China needs to return to the market. Until that happens prices are vulnerable to further sideways trading. At a price of over $18,000/tonne, nickel is seen as expensive and ripe for correction. Aluminium prices are coming off their highs and with weak fundamentals, further correction looks possible. Lead and zinc markets are said to be in surplus. Technically, the momentum for copper is said to be bearish.

Crude: Bullish outlook

The prompt Brent contract crossed the $118 a barrel mark last week breaching levels not seen since May 2012. Interestingly, the floor is provided by improving macroeconomic sentiment while the upward momentum is built on geopolitical developments. Technically, Brent crude is said to be looking bullish.

(This article was published on February 10, 2013)
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