Gold gets short-term fillip on investor interest

Uncertainties continue to cast a shadow on the global marketplace. Uncertainty of economic growth, uncertainty over monetary policy changes and geopolitical instabilities (albeit abating) continue to confound commodity market participants including investors.

The US Fed may delay tapering for a few more months given the softer payroll expansion and with a still uncertain outlook for fiscal resolution. Obviously, an extension of QE would be welcome news for investors.

China’s September trade data suggests that the recent broad-based recovery in commodity import demand may begin to ease.

Crude oil and copper concentrate imports hit all-time high while platinum imports too rose to the third highest level ever; and analysts assert that the strong burst of import is most unlikely to be sustained in the coming months. Refined copper consumption surged to record levels last month, but the first signs of surplus are visible.

At the same time, a rapid expansion of the US shale oil output has helped ease the tightness in the market, and prevented a price spike driven by supply shortage.

As for gold, the increase in price is driven by rising investor interest influenced by weaker-than-expected macro data and anticipation of a postponement of QE tapering to 2014, although the market clearly lacks physical demand support.

Last week, in London, helped by a weaker dollar, precious metals prices were up with gold leading the way with a gain of 2.4 per cent over the week, followed by silver with 2.2 per cent. Platinum edged up marginally while palladium price was down 0.5 per cent.

All base metals prices were up on the LME except copper. Nickel outperformed with a gain of 2.7 per cent over the week followed by tin 2.3 per cent and aluminium 1.9 per cent. Oil WTI was down about 4 per cent.

Going forward, uncertainties will continue to impact global commodity market dynamics.

Dollar weakness and likely delay in QE tapering are supportive factors for investment-commodities such as gold.

Tepid economic growth could hurt the price prospects of growth-driven commodities such as crude and copper. For crude, supply side factors are likely to keep prices on leash.

Agricultural markets have continued to rule soft, driven by a rebound in crop production (grains, oilseeds and cotton) and steady demand conditions.

Speculative capital has stayed in the sidelines. Crop planting and weather conditions in the southern hemisphere would be keenly watched over the next 2-3 months for further price signals.

Gold Bullish

Prices jumped back above $1,300 an ounce as the dollar weakened against the euro to 1.38. A short-covering rally and likely delay in Fed tapering have provided a short-term boost to gold prices.

The recent move higher in the yellow metal prices is carried by investor demand.

It must, however, be stated that gold has actually run out of supportive factors.

The metal lacks the support of the physical market for sustained price gains.

Volumes traded on the Shanghai Gold Exchange have softened further and festival buying in the Indian market is limited.

So, prices are likely to struggle to hold on to the recent gains.

In London on Friday, gold PM Fix was $1,348/oz, marginally up from the previous day’s $1,345.

However, silver softened to a Friday AM Fix of $22.35 versus previous day’s $22.67. Platinum closed at $1,440 ($1,447) and palladium ended at $733 ($749).

Metals mixed

The complex continues to be buffeted by various uncertainties including growth concerns.

Any sign of slowdown in China can hurt prices, especially at a time when supplies are improving and many metals are moving into surplus.

On Friday, LME cash copper closed at $7,179 a tonne, aluminium at $1,837, nickel $14,525 and tin $23,167.

Technical picture suggests copper momentum is bullish. Resistance is seen at 7,315 and 7,215, while support may be available at 7,050 and then 7,010. Copper is seen moving lower in range, but no meaningful breakout yet towards 7,000.

Crude Pressured

Easing geopolitical tensions, rapid expansion of shale oil production in the US, improving supplies from MENA region (Iraq, Nigeria) and steady demand in emerging markets have combined to put pressure on prices.

Under the current near-normal conditions, Brent is likely to trade at an average of $105 a barrel over the next two months, according to experts.

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