The big debate in global financial market circles last week was not whether there was a case for additional quantitative easing but whether there will be further quantitative easing by the US Federal Reserve. There are no easy answers; yet, the Fed Chairman, Mr Ben Bernanke's averment about monetary policy – “stronger economic growth would be needed to reduce the US unemployment and that such growth can be supported by continued accommodative policies”- is important pointer to the option available. The comments have been interpreted as dovish.

But unlike the previous two occasions, the reaction of the global commodity markets was muted this time. The markets are once again torn between improving growth signals, on the one hand, and, on the other, the continuing risks arising out of unresolved European sovereign debt, slowdown in China and escalating crude prices that threaten to destabilise.

Crude oil market last week stayed firm because of constructive fundamentals and ongoing supply risks due to geopolitical conditions. The talk of a strategic release from oil stocks helped temper the buoyancy.

On the other hand, the metal market is really riding on the horns of a dilemma. It relates to conflicting signals from overall global economic growth and softness in Chinese buying. Last week, the complex traded mixed. On the LME, lead (2.4 per cent), tin (2.6 per cent) and copper (0.8 per cent) posted gains while aluminium and nickel prices were down 2.2 per cent and 1.9 per cent respectively. Among precious metals, gold prices closed virtually unchanged on the week while silver gained 2.8 per cent and platinum 1.4 per cent.

The US prospective planting report released last week was bearish for new crop corn and cotton and bullish for new crop soyabean. However, experts have sounded a note of caution – and rightly so – about the numbers. It is highly likely that firming soyabean prices during the survey period may still encourage a larger acreage for the crop vis-à-vis corn. One may have to wait for the actual acreage data before betting on price direction.

According to experts, seasonal trends for April suggest a marginally positive month for commodities. The risk rally in equities buoys the energy market and metals participate with average returns for all commodities coming positive. Silver suffers the most though. As equities are positively skewed across all markets, gold is likely to face a rough weather as speculators tend to exit the precious metal in favour of equities.

Gold: On Friday in London gold PM Fix was at $1,663 an ounce, up from the previous day's $1,658/oz. Silver was, however, up with Friday AM Fix at $32.43/oz versus previous day's $31.79/oz.

Far from gaining upward momentum, gold prices have been under downward pressure for some time now. The metal has lacked sufficient investor interest of late. A steep hike in customs duty on gold imports into India and fear of demand compression has been a dampener. Any outflow from ETP holdings can result in deeper correction. However, the benefit of price fall in the international market is not available to Indian consumers because of rupee weakness.

Indian jewellers have gone on strike last 15 days protesting against imposition of excise duty on branded and unbranded jewellery as well. The jewellery market in the country lacks transparency. There is no way for consumers to be assured of quality and purity except through hallmarking which at present is expensive and not widely available. Coming under the excise net would mean that jewellery makers will have to maintain comprehensive records relating to the entire gamut of business operations (raw material, processing, sales, inventory and related costs) which will foreclose escape routes. Whether the Finance Minister who bravely taxed the sector will buckle under pressure remains to be seen.

According to technical analysis, buying gold on dips below 1,625 is advocated against the 1,600 area and look for a move back above 1700. Silver looks bullish and buys toward 31.1 recommended. A break above 33.20 would confirm bullish view toward 34.40. Medium term outlook is neutral.

Metals: Chinese demand slowdown has been weighing on the market much more than improving signals of global economic activity. According to reports, spot demand for metals in general and copper in particular remains weak in China. A tepid improvement may be expected in the second quarter because inventories are building. So, demand has to improve enough to result in a drawdown of domestic stocks. On the other hand, consumption data from the US and even Europe are encouraging.

So, with the complex awaiting direction it is sustained flow of positive macro data and signs of demand pick up in China that can trigger a move upward. In the event, return of risk appetite to establish long positions will become a reality. Markets to watch are copper and tin, admittedly in deficit. LME cash copper was $ 8,475 a tonne last Friday, tin $22,735/t and aluminium $ 2,087/t.

The technical picture suggests that a break below 2130 would confirm a bearish view for aluminium and a move toward 2100 area is possible. Copper looks bullish within its range and a break above 8660 will propel it toward 8765. Medium term outlook is range.

Crude: Prices have stayed firm with geopolitical concerns dominating the headlines and creating supply concerns. Demand side looks healthy. The outlook is constructive because of tightening market fundamentals.

Technical analysis suggests a bullish picture. Brent is outperforming WTI. Buying interest will underpin Brent in the 120 area and the spread may widen to near 20. WTI risks a move toward 101 before looking for a base.

>gchandra@thehindu.co.in

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