A somewhat mixed performance was the feature witnessed last week in the global commodity markets as crude stayed tightly ranged, base metals were selectively up (lead 1.3 per cent, zinc 1.0 per cent and copper 0.2 per cent) while gold and silver both were up week-on-week by 2.7 per cent and 2.4 per cent respectively.

However, the focus of attention has been on the grains market where prices traded in a choppy range, with a slight pullback from the previous week’s all-time highs. The pullback followed rain in the US Midwest and newer concerns over the macro situation.

There are fresh fears over European sovereign debt and financial sector woes particularly of Spain, Italy and Greece. Commodity market participants are keenly watching developments in this area. Interestingly, Chinese trade data for June released last week were mixed overall. Agriculture commodity imports came strongly, especially corn, soyabean and sugar.

Globally, while agriculture will continue to be a weather-driven market over the coming weeks, the energy and metals markets are still groping for direction. Brent looks well settled above $100 a barrel and even without a significant geopolitical risk it is likely to stay well above the psychological level.

Gold: Prices breached the $1,600 an ounce mark last week. The euro strengthened following ECB President’s comments that the bank would be willing to do whatever it takes to preserve the euro. In London on Friday, the yellow metal’s PM Fix was $1,618/oz unchanged from the previous day. Silver, on the other hand, was down on Friday to AM Fix at $27.73/oz from the previous day’s $27.81/oz.

As for the immediate future of gold, it is clear that the metal lacks physical market support. ETP holdings have softened. Concerns over poor southwest monsoon conditions in India further affect the sentiment. The country is most likely to face elevated levels of food inflation and fall in rural incomes in the coming months. Some policy action to restrain gold imports cannot be ruled out. Gold’s safe haven status is also somewhat shaky.

So, clearly, gold is desperately looking for a fresh catalyst to drive prices higher. However, the downside support will necessarily have to come from physical demand in two of the world’s largest consumers – China and India – as well as resilience of ETP holdings.

On current reckoning, physical demand looks brittle and poised to deteriorate. So, risks to the downside outweigh upside price possibilities.

According to technical analysis, gold is experiencing short-term strength toward the 1,640 range-highs. Above that level, there is a case for turning bullish. Silver, on the other hand, lacks traction while price is stuck between 26.10 and 28.50. The medium-term outlook is neutral.

Base metals: The complex ended the week strongly with lead ($1,919 a tonne), zinc ($1,851/t) and copper ($7,557/t) prices up in LME. After recent gains, Shanghai Futures Exchange copper stocks fell 2.8 per cent over the week.

Overall, the complex continues to be impacted by unfriendly macro sentiment that has resulted in range trading although brief short covering rallies are seen occasionally. The quality of macro data flowing from key demand regions is not supportive.

Tight supply conditions in copper and tin support prices from falling drastically. If growth expectations in H2 of the year were to materialise, end-demand should improve and provide a stimulus for price recovery. Clearly, China is the key. Should there be a sustained draw in inventories, imports towards the year-end should pick up.

According to technical analysts, copper is challenging pivot resistance near 7,600 ahead of a short-term uptick toward the range-highs of 7,800 which should be sold into. Aluminium still looks bearish against 2,000. Short-term risks are for a test of 1,950 before lower. The medium-term outlook is bearish.

Crude: The market remained firm through the week, but the upward momentum has been capped by the resurgence of sovereign debt fears. The market is looking for a trigger. Although geopolitical issues are not to the fore at present, one can expect a further upward drift in prices in the coming months given the constructive fundamentals.

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