Global commodity markets continued to be characterised by short-term price action influenced by concerns over the evolving macroeconomic picture. The multi-billion dollar question is whether the Fed will embark on further quantitative easing. The market saw Fed chairman Bernanke’s recent statement as moving closer to providing additional monetary stimulus to boost the US economy.

That apart, weakening dollar, concerns over slowing growth and escalation in European sovereign debt uncertainty all combined to impact commodities. A rising Italian bond yields heightened fears of contagion of debt problem through Europe, dominating the positive impact of solid Chinese economic data, commented an expert.

No wonder, last week, the investors’ eternal favourite gold hit fresh all-time highs across several currencies, despite seasonal demand weakness. On the other hand, base metals were lower through the week, again on macroeconomic concerns. As for crude, OECD demand in 2011 witnessed broad-based downgrades even as OPEC production remained strong. Most sets of forecasts released recently continue to point to robust non-OECD demand growth in 2012, with OECD demand expected to fall and overall demand growth expected to outpace non-OPEC supply again.

So, sentiment driven by both fundamental and non-fundamental factors continues to buffet the world commodity markets. The overall sense that one gets from recent developments is one of bullish sentiment for commodities, either as safe haven investment or growth-led. In the short-term however the market is likely to remain volatile as unfolding events can either boost or worsen the sentiment.

Gold: Prices hit fresh highs last week because of a combination of factors – dollar weakness, heightened sovereign debt concerns and expectation of further monetary stimulus in the US. Continued macroeconomic uncertainty meant huge safe haven buying that boosted prices.

However, late last week, there was correction across the precious metals complex in the London market. On Friday, in London, gold PM Fix was at $ 1587 an ounce, down 0.2 percent from the previous day. Silver followed suit with Friday AM Fix of $ 38.17/oz, down by a hefty 3.1 percent from the previous day.

In the near-term, as the backdrop for gold is favourable, the precious metal is likely to enjoy gains and hit fresh highs. In the US, interest rates are unlikely to rise anytime soon. The yellow metal has the potential to breach $ 1600/oz and test $ 1650/oz. Many analysts are revising their gold price forecasts higher. Should investor interest wane there could be correction; but physical demand is likely to emerge on such dips. Although silver is likely to follow suit, it is clearly vulnerable to big downside risks or steeper corrections in the event investor interest declines.

According to technical analysts, silver stalled under 39.50 range highs; but a break above there will open up a higher target near 41. There is reason to remain bullish on gold; but have to be wary about an over-bought dip towards 1550. At that point, buying will emerge to propel the metal to above 1600. The outlook is bullish.

Base metals: The complex continues to be impacted by macro concerns. In the more likely event of a benign macro picture evolving in the second half of the year, market fundamentals will assert themselves. Supply side issues will shape price action.

Copper and tin, in particular, are candidates for a strong price recovery. In copper, weaker-than-expected mine supply and pick up in Chinese demand in the coming months will propel prices higher. Aluminium prices are supported not only by global demand growth, but also by energy-led cost inflation. Threat to Chinese production from power rationing cannot be wished away. Lead is facing serious supply side problem with the closure of the world’s largest mine and pickup in demand from battery sector.

According to technical analysts, copper is in a near-term range. A break above 9830 will confirm bullish view to 10000. Aluminium has support near 2450 and has the potential to move higher towards the 2600 area. The medium term outlook is bullish.

Crude: Macroeconomic concerns continue to take their toll, keeping demand-supply fundamentals in the background. If growth concerns do not worsen and turn more benign, market tightness will propel prices higher. A close watch is warranted.

Technical analysts assert that the crudes are consolidating. A move lower in the range near 113 for Brent and 93 for WTI will be a buying opportunity. A break above 119and 99 respectively would confirm bullish view towards 120/100 and then on to 125/105.

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