Gold hits all-time high amid supportive conditions

Not unexpectedly, concerns over global economy continue to impact the near-term price direction of a number of commodities, especially the growth-driven ones such as energy and industrial metals.

Both Europe and the US are in the midst of the heightening uncertain climate. Unresolved European debt crisis and deadlock over the US debt ceiling have combined to disable a sustained connect from market fundamentals to price performance, an expert report pointed out.

Adding to the uncertainty is the disappointing Q2 US GDP numbers.

As expected, with conditions highly supportive, gold prices hit new all-time highs last week.

Crude prices have been trading sideways, unclear about the possible impact of macroeconomic developments.

Copper prices have begun to gain more traction following supply disruption due to ongoing strike at the world's largest mine in Chile.

For the metals market, China has been the epicentre of activity.

Production and trade data of the Asian giant for major metals and raw materials suggest that destocking may be coming to an end for some commodities.

Warehouse stocks have been falling. Copper, aluminium and zinc consumption has been on the rise during the first half of the year.

The world is entering a crucial period when government policies and macro-data will exert tremendous impact on the currency market and, in turn, on commodity markets.

Whether the US dollar will weaken further or gain strength will remain unclear until the debt ceiling issue is addressed.

Commodity fundamentals have remained in the background. It would be advisable to exercise caution in taking forward positions.

Gold: Continued macro-economic concerns have driven investors towards gold, which is boosted by safe haven purchases. ETP holdings have hit an all-time high. Deadlock over US debt ceiling and medium-term European sovereign debt concerns have dominated and more than neutralised the seasonal weakness in physical demand.

In London on Friday, gold PM Fix was at $ 1,629 an ounce, up sharply (0.9 per cent) from $ 1,614/oz of the previous day. The yellow metal gained 1.7 per cent over the week.

On the other hand, Friday AM Fix for silver was at $39.63/oz, down 1.4 per cent from the previous day's $40.19/oz.

Over the week, silver was down 0.1 per cent.

Prices are expected to stay at elevated levels with profit booking exerting some downward pressure. For any reason, if investor interest were to wane, there will be steep correction in prices. Barring short-term correction, the external environment is supportive for gold. Prices may test fresh highs.

According to technical analysts, the next target for gold is 1,635 and then 1,670. But near-term momentum concerns still hold out the prospect of better buying levels.

As for silver, a clear break above 41 will prevent a near-term dip towards 38, and target 43. The medium-term outlook is bullish.

Base metals: As growth commodities, macroeconomic concerns continue to haunt the complex.

Over the week on LME, copper (1.6 per cent) and nickel (4.3 per cent) gained. Nickel was the big mover testing $ 3,000 a tonne.

The price performance in the coming months will be impacted by macroeconomic developments.

If a more benign picture for H2 emerges, then fundamentals will assert themselves.

In the event, copper and tin are likely to emerge as top performers. Copper mine supply is turning weak. Chinese imports during the rest of the years will boost prices.

Technical picture suggests a disappointing price action in copper; but above 9,600, there is reason to remain bullish targeting 10,000.

In case of aluminium, consolidation above 2,590 sends out bullish signals and a run towards 2,700 is possible. The medium-term outlook is bullish.

Crude: Both positive and negative factors are currently tearing the market apart. Weak oil demand in the US is offset by robust demand elsewhere.

Although macroeconomic concerns dominate, the market fundamentals are constructive.

Until the path to global growth is clear, the market will face uncertainty as to price direction.

Technically, WTI is under pressure targeting 94 before bulls retry 100, above which opens target at 101 and then 103.

Brent is holding higher in range suggesting the spread widening towards 23.50 as the flat price looks to break higher toward 120. Medium-term outlook is bullish.

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