Waning demand, stronger dollar take glitter off gold

For the global commodity markets, last week was generally positive except for softer prices of select base metals and agriculture. Crude oil, all precious metals and most base metals registered price gains. Among precious metals, platinum and silver were the strongest performers recording handsome price gains of 4.9 per cent and 4.6 per cent respectively. Gold gained a mere 0.6 per cent. The price differential between gold and platinum has narrowed rapidly to $32 an ounce.

Although base metals had a mixed close to the week, over the week tin performed well with handsome price gain of 4.7 per cent while aluminium and nickel prices gained 1.8 per cent and 1.3 per cent respectively. Lead, zinc and copper prices fell. Grains prices stayed under pressure with uncertainty ahead of two key USDA reports. ICE sugar prices were the weakest performers among soft commodities weighed by ample supplies expected from Brazil, the world’s largest sugar producer and exporter.

From the experience of 2012 and performance during the early days of 2013, it is becoming abundantly clear that investors remain cautious about commodity risk. No one is willing to buy baseless bull stories anymore. China’s economic performance will have a significant impact on many commodities. Sustained flow of positive macro data will prove positive for base metals complex.

Gold – muted price

Gold price action in recent weeks has been rather muted because of a lack of conviction. Its haven status may not exactly be under challenge, but investors have been disappointed because widespread expectations on price performance have been belied. Worse, the hurdles are mounting. The physical demand continues to be soft, despite exaggerated claims by lobbyists, while the dollar is gaining in strength.

In London on Friday, gold PM Fix was $1,658/oz, down from the previous day’s $1,675. Silver bucked the trend with Friday AM Fix at $30.67/oz versus previous day’s $30.49. Platinum has performed admirably with Friday PM Fix at $1,626, just two per cent shy of gold price.

According to technical analysts, gold momentum is bullish. Resistance is seen at 1,700 and then 1,680, while support is seen at 1,640 and then at 1,625. Gold needs to sustain the close above 1,665 area to signal a move toward the 1,695 area. Trend indicators however warn of further near-term chop over 1,625. In silver, it may be advisable to buy on dips against 29.20 for a move toward 31.50. The medium term outlook is said to be bullish.

metals – supply glut

In the short-term, the prospect of a price increase in the complex is almost entirely dependent on financial market sentiment and flow of macro data. Many metals are in a state of surplus and therefore may provide an opportunity to go short.

On LME, Friday, copper cash closed at $8,017 a tonne and aluminium $2,063. According to technical analysts, copper momentum is bearish with resistance at 8,260 and 8,165, and support at 8,025 and 8,000.

While further weakness in aluminium towards the 2,000 area looks less-likely, one can look for a move back toward 2,185. In copper, buying on dips toward the 7,970/8,000 area is advisable. The next higher target is 8,255. The medium term outlook is said to be neutral.

Crude – steady demand

Prices have drifted higher in the last few days providing a positive start to the New Year. But there is consensus over a lack of directional momentum for prices to move substantially away from the $111 a barrel mark for Brent.

Fundamentally, global oil demand continues to hold steady with healthy import data coming from Asia.

At the aggregate level, the trend in the oil market balances in 2013 will be similar to that of the previous year which means demand will stay robust while non-OPEC supplies may disappoint. It follows that there will be a call on OPEC crude at elevated levels.

What can drive the market higher are geopolitical developments; and it is anybody’s guess how such events will pan out.

According to some technical analysts, there is reason to be bullish on crude oil, but be prepared to allow for dips along the way. There could be buying interest near 91.50 to underpin WTI.

For Brent, one can look for a move over 112 to open 113. Medium term outlook is said to be neutral.

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