Economic activity around the globe is showing definite signs of improvement going by the leading indicators.

The latest evidence is provided by the OECD composite leading indicators based on January 2012 data. Belief that the worst is over for global growth is gaining credence.

If true, then the world may have just about escaped a severe financial market turmoil emanating from the eurozone crisis.

There is now a sense of cautious optimism. This should, in turn, raise the confidence level of market participants, which again will translate to more demand for growth-related commodities such as crude oil and metals covering industrial and base metals.

As it is, the crude market has been volatile and rising due to geopolitical tensions in West Asia. This can potentially result in inflation.

Once again, governments are more likely to be faced with the onerous task of reconciling the growth versus inflation dilemma.

The second quarter of this year will assume greater importance for the world commodity markets from the perspective of macroeconomic data flow, demand dynamics and currency fluctuations.

Reduction in uncertainty or return of confidence means different things for different commodities. For growth commodities it is price positive, while for safe haven assets such as gold, it is not so.

Last week, base metals struggled to find direction. Week-on-week, copper was broadly unchanged (closing $ 8,531 a tonne LME cash) while aluminium gained one per cent (closing $ 2,219/t). Nickel lost 2.1 per cent over the week to close at $ 18,822/t.

Precious metals complex had a mixed week. Both gold and silver traded lower over the week.

While the yellow metal was down 1.7 per cent, silver lost 4.7 per cent. This resulted from long liquidation in the wake of Federal Reserve meeting where there was no sign of further quantitative easing.

On the other hand, both platinum and palladium gained 1.3 per cent and 1.9 per cent respectively.

The big news of the week was of course the Indian Budget 2012-13 wherein the Union Finance Minister paid a lot of attention to gold. Customs duty on gold import has been doubled to 4 per cent which at current prices translates to about Rs 1,000 per 10 grams. Additionally, import of ores, concentrates and dore bars for refining has been taxed higher, excise duty on refining has been raised and jewellery – both branded and unbranded – will bear one per cent excise duty.

Gold traders and jewellery makers have protested; but the Government is likely to remain unmoved. There are serious concerns over ballooning foreign exchange expenditure on gold and silver imports. Any demand compression in India will further weaken global prices.

Gold: Less-committed investors continue to exit the gold market as confidence over economic growth improves.

Closing below its 200-day moving average, gold price is currently trading at a discount to platinum price.

In London on Friday, gold PM Fix was $ 1,658 an ounce, up from $ 1,648/oz the previous day.

Silver bucked the trend with Friday AM Fix at $ 32.27/oz versus previous day's $ 32.36/oz. Platinum closed at $ 1,677/oz little changed from the previous day. Gold's move upward earlier was no doubt driven by expectations of further quantitative easing, weak US dollar and geopolitical tensions.

With the prospect of further quantitative easing reduced, investors have begun to scale back their exposure.

Physical demand has been tepid. Indeed, the producers' lobby and gold bulls had made exaggerated claims of expanding demand for gold; but events of the last few days have shown these claims to be misplaced or hollow.

So, gold prices are likely to remain under pressure for some more time. Improvement in the equity market is sure to put further pressure on the precious metal.

Silver takes its cue from gold, but is dependent on investment demand as the market is in surplus. So, expect silver to move in tandem with gold with larger corrections on the downside.

The technical picture for gold and silver does not look promising.

If gold closes below 1,640 in the coming week (and there is a good chance it will), price may move toward 1,600.

A close below 32.25 target 30 for silver. Medium-term outlook is neutral.

Base metals: The market is clearly at the crossroads. On the one hand, there are clear signals of global growth revival and on the other, softness in Chinese buying. Yet, there is expectation of a revival in demand in the US and Europe while China's return to the world market may happen sooner than many expect as stocks get absorbed gradually.

So, Q2 is most likely to witness a base metals demand growth. If the macro picture continues to improve, risk appetite to establish long positions may return to the market with implication for prices.

In the event, copper and tin, two metals in deficit this year have the largest upside price potential. According to technical analysts, the short-term outlook for copper and aluminium is neutral with guidance to sell rallies against recent range highs. Medium term outlook is range bound.

Crude: The market witnesses choppy trading as supply side uncertainties continue, the demand side, especially non-US demand, looks robust. Technically the outlook looks bullish for oil.

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