Over the last week, global commodity markets have demonstrated mixed price performance in the absence of clear direction and continuing geopolitical uncertainties. While crude stays at elevated levels — Brent at around $117 a barrel — the base metals complex faces soft physical demand following concerns over possible Chinese slowdown and macroeconomic uncertainties.

On its part, gold continues to stay well above $1400 an ounce but is struggling to gain traction as it's caught between huge uncertainties including geopolitical tensions in the Middle East and North Africa (MENA) region and potential monetary tightening. Investor interest from Japan is likely to be rather subdued.

Meanwhile, the closely watched US non-farm payroll data for March were better than expected, with jobs rising by 2,16,000 and the unemployment rate dropping to 8.8 per cent. This gives spurring confidence that the US economy can maintain the momentum.

The dollar has considerably weakened against the euro. Many believe, the tensions in the West Asia have eased a little; but there is nothing to suggest return of normal conditions anytime soon. Any further rise in crude (to $120 a barrel) can trigger a supply response.

So, overall, global commodity markets are groping for direction in the face of several uncertainties relating to demand, supply, currency and investor interest. It is necessary to exercise caution.

Gold: Finding good physical demand support upon price dips, the yellow metal has continued to trade well above $1,400/oz. On Friday in London, the PM Fix was at $1,418/oz, down 1.5 per cent from the previous day's $1,439/oz. Silver followed suit with Friday AM Fix at $37.63/oz, down 0.6 per cent from previous day's $37.87/oz.

Notwithstanding all the hype about gold's price potential, it is important to note that gold has actually underperformed or not performed as widely anticipated. Despite all the uncertainties and favourable environment — high crude prices, weaker dollar, geopolitical instabilities and so on — gold prices have actually failed to cut loose. It also suggests that investors perceive the present uncertain environment as transient. If and when growth signs consolidate and equity markets begin to improve, one can expect an exodus from gold.

Silver continues to take cue from gold, but is sure to remain volatile as its fundamentals are weak. For 2011, the surplus is an estimated 5,000 tonnes. When gold price start to decline, silver runs the risk of a price collapse.

Base metals: In the international market, copper and nickel finished the week lower with decline of 3.4 per cent and 5.4 per cent respectively week-on-week; but zinc gained by 0.9 per cent and lead by 2.1 per cent. According to experts, nickel appears to have suffered the most on concern about supply and a likely weaker second half for stainless steel production gains. Lead outperformed on support from funds. Copper was at $9,343/t LME cash on Friday.

Currently, the base metals complex is facing headwinds in the form of concern over slowdown in Chinese demand, high crude prices and geopolitical instabilities, not to speak of the calamity that hit Japan. Until the global picture becomes clear, the market may be expected to stay range bound.

In the second quarter, the potential for demand growth is seen high, especially if macro-data turn more supportive in a sustained manner and geopolitical concerns abate. Both aluminium and copper have potential for a price spike when growth returns. Experts continue to favour a long position in the two metals.

Crude: The big question which no one has a clear answer to is whether geopolitical tensions have eased somewhat. ‘There may be a lull, but no easing', an expert pointed out.

Any escalation can take crude beyond $120 a barrel whereupon there will be supply response. On the other hand, if tensions subside, the market can decline below $100 a barrel. On current reckoning, it is unlikely that the tense situation would improve anytime soon. So, it may be prudent to assume a floor of $105 for crude for the time being. Demand conditions are turning increasingly robust.

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