G Chandrashekhar

Gold rebounds in cautious market

G. Chandrashekhar Mumbai | Updated on April 28, 2013

gold

Global commodity markets showed signs of stabilisation last week with somewhat firmer price action even as the markets posted varying degrees of recovery.

However, on Friday commodity prices faced a sell-off following a weaker-than-expected US GDP data.

Week-on-week all metals gained, save aluminium. While most base metals prices were in the positive territory with modest gains, precious metals performed well with gold turning out to be the outperformer gaining 4.7 per cent followed by platinum 4.1 per cent. Silver underperformed relative to the yellow metal with a rise of 1.5 per cent.

Oil WTI gained as much as 4.7 per cent over the week even as the differential with Brent narrowed further. Brent prices closed above $100 a barrel.

Again, as experts have pointed out, China commodity trade data released last week showed that while commodity imports did climb up from holiday lows, the pace of recovery could only be termed as modest, especially considering more favourable import economics for some commodities.

However, for many commodities, the price rebound could well be a temporary reprieve spurred by a combination of short covering, more positive macro data and the lack of a risk-off sentiment.

Gold found support from a strong physical demand while the physically-backed gold ETPs endured continued outflows which have hit 310 tonnes year-to-date.

Gold: Fragile outlook

Resurgent physical demand at lower prices has provided support to gold prices that collapsed a week earlier, tumbling below $1,350 an ounce on April 15. While demand recovery is a positive sign, loss of investor interest (both short-term and long-term) that pressured prices down is a cause for concern.

On Friday, in London gold PM Fix was $1,472/oz, smartly up from the previous day’s $1,451, while silver tagged onto gold with Friday AM fixing at $24.02 versus previous day’s $23.30.

Platinum too gained to a Friday PM Fix of $1,483 from $1,454 the previous day, while palladium was at $681.

Looking ahead, the near-term for the yellow metal looks fragile. Continued ETP outflows which are on track to mark a fresh record high remain a key downside risk to gold prices in the near-term. Despite being strong, physical demand from Asia – India and China – is unlikely to prevent a further correction in gold prices.

Importantly, Indian demand will start to decline from May when the marriage season concludes and crop planting season begins.

According to technical analysts, gold faces resistance at 1,520 and then at 1,505, while support is seen at 1,440 and 1,400.

One can expect upticks in gold to find selling interest near 1,520 and look for further downside before establishing a larger base.

Muted metals

Prices in the complex somewhat stabilized after weeks of selling pressure. Chinese import data for March are seen as a positive for market sentiment although import volumes are yet to show a marked pick up. Most metals are in surplus and therefore the price outlook is fragile.

So, any upside in Q2 should favour selling. On Friday, LME cash copper closed at $6,998/tonne and aluminium $1,845.

From a technical perspective, copper faces resistance at 7,330 and 7,260 while support is seen at 6,980 and 6,760.

Charts suggest near-term base patterns in lead and zinc signal upside toward 2,100 and 2,000 respectively where one can look to sell.

Crude rises

Prices have gained upward traction following short covering rally and bargain hunting. A return of geopolitical uncertainty in addition to positive macro data including fall in jobless claims in the US and ECB rate cut expectations helped.

Market fundamentals continue to favour range trading rather than support price swings as supply availability has improved and demand stays steady.

Published on April 28, 2013

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