Gold on the upsurge, silver bullish

Last week was positive for a number of commodities in the world market with price gains in energy, metals and agriculture sector. The US made a significant contribution to boost positive perception of the global commodity market. The flow of positive macro data together with the Fed's assertion of continuing with the ‘loose money' policy until 2014 buoyed the sentiment.

The US GDP growth was reported at 2.8 per cent in Q4 2011 at a seasonally adjusted annualised rate, the strongest gain since Q2 2010. Consumer confidence is seen rising. Inflationary pressures appear to be moderating. As for China, the mover and shaker of the world commodity market, December trade data continued to paint a picture of robust commodity demand.

While oil prices buoyed on strong US manufacturing data, base metals gained on encouraging fundamental data trends. The base metals complex has rallied since the beginning of the year smartly, but whether it is sustainable is open to question. Precious metals in particular extended their gains following Fed's guidance. Platinum beached the $1,600 an ounce mark on supply concerns. With the notable exception of cotton, agriculture commodities too gained with the support of positive external markets.

World steel consumption during 2011 is now estimated slightly above 1,500 million tonnes, suggesting a 6 per cent apparent demand growth. There is expectation that the growth rate may slow down in 2012 to around 4 per cent. It could be low when compared with growth rates of last 15 years, although the 30-year average is 3.1 per cent, an expert report pointed out.

Going forward, steady flow of positive macro data, cautious optimism over resolution of European sovereign debt issue and importantly the guidance from Fed about the monetary policy is sure to improve sentiment and propel prices higher. The US dollar has, in recent days, reversed its firm trend.

A weaker dollar will generally be price positive for many commodities. Investment fund staying in the sidelines are likely to pitch in with improving market sentiment. Yet, it is safe to expect a steady rise in prices driven by both fundamental and non-fundamental factors.

Gold: Precious metals complex enjoyed a golden week with robust price gains after the Fed pushed back its guidance for the timing of the first hike in federal funds rate target to at least late 2014. Weaker dollar and favourable macro backdrop boosted gold prices through important technical resistance levels, an expert commented.

Silver outperformed with a price rise of 10.3 per cent week-on-week, followed by platinum (6 per cent) and gold (4.4 per cent). In London on Friday, gold PM Fix was $1,726/oz, a tad lower than the previous day's $1,727/oz. Silver shone with Friday AM Fix at $33.48/oz versus $33.35/oz the previous day.

Clearly, gold's performance is despite lack of physical demand from China given the Lunar New Year holidays. Silver's strength is derived from investment demand despite the fact that the metal's industrial outlook and ETP holding have been rising.

With sentiment improving, it is most likely that more funds will flow into gold and silver. The upside potential will surely be probed in the coming days. However, one can expect profit taking on the way up. As for India, the benefit that must arise out of recent firming of the rupee vis-à-vis the dollar has been neutralised by rising gold prices in dollar terms.

According to technical analysis, the near-term view for gold is bullish. Gains may extend towards 1,765 initially and then to 1,800. As for silver, a decisive break over 33.70 would signal an upside extension towards 35.70 range highs. The medium-term outlook is neutral.

Base metals: A good week for the entire complex as prices rallied smartly. Tin outperformed with a price gain of 11.7 per cent followed by nickel 6 per cent. On Friday, LME cash copper was $ 8,525 a tonne (gaining 3.7 per cent over the week) and aluminium $ 2,266/t (2.3 per cent over the week).

Interestingly, much of the price fall witnessed during September 2011 in base metals has been reversed in the first four weeks of this year. Whether this is a decisive break from the downturn of last year is open to debate. Contribution of funds to the present price rally cannot be ruled out. Improving macroeconomic data and market fundamentals are sure to play a positive role.

According to technical analysis, there is reason to be cautiously bullish on copper given the near-term topping risk. A clear break above 8,500 creates a long-term constructive picture. If aluminium breaks above 2,300, it opens 2,360 where one can look for a top. In the medium-term, the market would be range-bound.

Crude: Prices buoyed with positive economic data and geopolitical situation turning hotter. There are concerns that Iran may ban export to the EU in retaliation. The market needs to be watched closely for upside price risks as fundamentals are constructive.

Technically, Brent crude is holding above support in the 108.80 area. A close above 111.80 will signal upside scope. A weekly close over 112.50 will make the perception more bullish towards 114.80 area. Above 101.40 in WTI opens 103.90 target area. The medium term outlook is neutral.

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