Last week saw commodities in the global marketplace gain generally with crude reaching $124 a barrel and gold conquering the $1,500 an ounce peak. Geopolitics continued to drive many commodities up. Silver continued to hit fresh 31-year highs (in excess of $46/oz) on the back of unabated investor interest.

Grains firmed up too on concerns over weather particularly in the context of low inventories and continued strong demand. On the other hand, the base metals complex was range-bound because of Chinese demand concerns following monetary tightening.

World steel production in March dipped slightly below February numbers according to World Steel Association; but remained on course to hit the 1.5 billion tonne mark this year. Drop in production seen in Japan, China, the US and Eastern Europe contributed to the 1.5 per cent month-on-month decline.

While steel production in China is expected to be around 720 million tonnes, oil demand has been surging for last six months at double digit, rising by 10.6 per cent year-on-year in March. On the other hand, coal imports have somewhat weakened last two months.

So, the emerging sense is that commodity price risks are more skewed to the upside than otherwise. Although the current drivers are generally non-fundamental (geopolitics, for instance), market fundamentals are beginning to tighten in a number of cases with the twin effect of demand growth and supply constraints.

Gold: The precious metal eventually conquered the $1,500/oz ounce peak last week as inflation concerns continued to drive investor appetite. The dollar weakened against the euro. On Friday, in London, gold PM Fix was at $1,504/oz, up from $1,501/oz the previous day.

Silver rose more aggressively to AM Fix of $46.26/oz on Friday, up 3.3 per cent from $44.79/oz the previous day. Silver was an outstanding performer rising 8.8 per cent over the week to an astonishing level in excess of $46/oz.

According to reports, there is tremendous speculation about further rise in silver prices. Everyone with some surplus cash is betting on silver. The ongoing unrest across MENA region, rapidly building inflationary environment, resurfacing of European sovereign debt concerns and weak dollar are helping prices higher. Until the situation comes under control, the two precious metals will continue to be investors' favourite. Silver's weak fundamentals are currently overshadowed by strong investor interest and retail demand.

Base metals: The complex was mixed through the week. Gains in copper and aluminium outstripped weakness seen in the $ through the week. Zinc and lead underperformed after strong gains since mid-March. Demand growth has remained fairly robust for aluminium, nickel, lead and zinc.

The entire complex is currently facing headwinds in the form of indifferent physical market indicators, concerns over Chinese slowdown and ongoing credit tightening. So, one can expect prices to remain range-bound in the short run. Taking a long position in copper and buying on dips is seen as a good strategy, while further upward price performance for aluminium is seen limited.

Closure of world's largest lead-only mine and re-emergence of Japanese demand is sure to propel lead prices higher.

Crude: Brent is trading well above $120 a barrel; but the market may be taking a pause before finding a fresh catalyst. Demand is surely robust.

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