The OECD composite leading indicators continue to point to economic expansion. This has implications for the commodity markets especially the growth-oriented commodities such as metals and energy. No wonder, global steel production and consumption are set to hit new highs this year going by latest data. Both output and consumption are expected to breach the 1,500 million tonnes-mark this year. Emergence of restocking demand in key regions is in evidence. Peak steel demand season is 2Q. After a month long slide, iron-ore prices have begun to move up.

Amid this growth-positive scenario, there are headwinds to counter. Geopolitical concerns continue to haunt the market. Continuing instability in the MENA region, after-effects of natural calamities in Japan, fresh concerns over sovereign debt, high crude prices and weakening dollar are all being watched closely. In particular, resurfacing of the sovereign debt crisis deserves close scrutiny.

Commodity markets currently are somewhat clueless about the direction over the coming months. Whether geopolitical tensions will escalate or abate is unclear at present. Market uncertainties have triggered flight to safe haven assets such as gold. So, caution is the watchword for the time being.

There are incipient signs of an end to loose money. Tighter regulatory control over derivatives markets cannot be ruled out either.

Gold: Prices tested all-time high last week as market uncertainty was compounded by renewed concerns over sovereign debt. However, high oil prices, weakening dollar and pick up in equities market forced a small correction. In London on Friday, the gold PM Fix was at $1,436 an ounce, down from the previous day's $1,447/oz.

Silver was somewhat muted with Friday AM Fix at $37.68/oz versus previous day's $37.78/oz, still at three-decade high. In case of silver, although the physical market is in surplus, investment demand is the key driver and is seen strong. Silver ETP inflows have been strong and have reached new highs of nearly 15,500 tonnes.

Upon price dips, gold finds continued support from Asian demand, while bar premiums in Tokyo have hit 3-year highs. The broad market uncertainty is likely to support investor interest with gold ETP flows turning positive this month.

Given the weak fundamentals, silver prices will remain volatile.

Base metals: Zinc witnessed a short covering rally last week, although it fell on Friday by 1.8 per cent. Tin and aluminium crept higher to end the week at 8.1 per cent and 2.9 per cent higher respectively. Aluminium closed at $2,610/tonne. Price action has been mixed across the complex, but the broad trend is of consolidation. In case of aluminium and lead, such consolidation is taking place at higher levels. Although geopolitical instabilities and Japan's natural disaster are unsettling the market, the event shave not stopped the process of economic recovery. Prices are sure to remain volatile until there is more clarity on how developments will play out. Especially, rising crude prices and inflationary pressures are major risks to global growth and metals demand. For many metals such as copper, the market is turning increasingly constructive.

Crude: Prices remain firm with indications of strong demand and tenuous supplies compounded by mounting geopolitical instabilities. Experts are revising their oil price forecasts upwards. Given the potential for escalation in geopolitical developments, the world may have to brace for higher crude prices even from the current elevated levels of about $115 a barrel for Brent and $105 a barrel for WTI. Tightening market balances and sustained consumption demand growth in import-dependent countries such as China and India are driving the market.

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