G Chandrashekhar

Asian physical demand holds key to gold

G. Chandrashekhar Mumbai | Updated on March 12, 2018


The uncertainty surrounding the timing of the US Fed tapering (reduction in the US asset purchase) decision continues to haunt the world commodity markets.

Admittedly, the decision will be data-driven and recent data have raised expectation of a Fed tapering as early as December or as late as March 2014. But the decision not to begin tapering in September resulted in some positive positioning in the market; but such positioning has by now fizzled out, experts have pointed out based on release of latest CFTC data relating to commitment of traders.

Despite all this, the most recent dovish comments from the Fed vice-chair and prospective Fed chairperson that ‘accommodative policy remains necessary’ have once again raised doubts over the timing of tapering, providing some support to prices.

From a macro perspective, composite leading indicators, designed to anticipate turning points in economic activity relative to trend, signal improvements in growth in major OECD countries and also possibly in China among major emerging markets.

This should provide a boost to demand for growth-driven commodities such as energy products (crude) and base metals (mainly copper).

Last week in London, precious metals were under intense pressure as silver prices declined by a whopping 4.9 per cent, followed by palladium (-3.7 per cent). Platinum edged lower by 0.6 per cent while gold barley managed to remain unchanged, but continued to trade well below $1,300 an ounce.

Base metals complex too was under pressure as prices fell week-on-week across the board. Copper was lower by 2.3 per cent to end the week at $7,000 a tonne, lead moved down by 2.2 per cent and aluminium by 1.5 per cent going below $1,750. Oil WTI was down 0.7 per cent over the week.

Gold: fragile

Last week, prices stayed below $1,300/oz with strong downward bias with a test of $1,260 at one stage.

While external markets continue to set the tone for trading, physical demand has not provided any price support despite seasonal factors in operation. Investor interest is fragile.

In London, Friday gold PM Fix was $1,287 edging up from the previous day’s $1,286. Silver ended lower with AM Fix of $20.64 versus previous day’s $20.78. Platinum declined to $1,438 ($1,451) generally retaining its premium over gold; while palladium providing the exception with a close of $729 on Friday, up from $718 the previous day.

Going forward, gold market will be driven by demand side factors including in the main physical demand from India and China.

Going forward, gold prices, in dollar terms, are likely to trade in a range with a downward bias. Many market participants are pinning hopes on demand pick-up ahead of the Chinese New Year.

Metals bearish

While leading indicators suggest a pick-up in economic activity that should translate into improved demand conditions, the market is impacted by rising supplies and inventory.

Developments within China are being keenly monitored, especially with respect to government policies that will have an impact on commodity consumption and trade.

On Friday, LME cash copper closed at $7,000 a tonne and aluminium at $1,745.

With copper momentum indicating oversold conditions, resistance is seen at 7,130 and 7,080 while support may be available at 6,900 and 6,775.

The technical picture suggests commodities in the medium-term are in a bearish trend; but one can look for a bounce in aluminium to 1,825.

Crude mixed

The WTI-Brent differential widened to $14 a barrel last week as each benchmark diverged for geopolitical and fundamental reasons, experts remarked. WTI prices have remained weak on rising stock levels, planned and unplanned refinery maintenance, strong import levels and rising oil production.

At the same time, Brent crude futures contracts gained by $3 to $108 a barrel on colder weather in Europe as well as reports of unrest in Iraq and Libya.

Dimming prospect of a deal with Iran in the Geneva round of negotiations was supportive.

Published on November 17, 2013

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