Gold, silver make solid gains; may move higher

Because global commodity markets demonstrated divergent trends last week in the wake of macroeconomic concerns once again drawing attention, it was least surprising that precious metals, and in particular gold, turned out to be star performers. While the crude markets were buoyant over the week, most base metals remained largely flat.

On Friday, base metals fell across the board as the US jobs data for August came in worse than already subdued expectations, showing zero growth for the month with a downgrade to June and July figures.

Interestingly, gold has gained as much as 11.4 per cent month-on-month in August to an average of $1,752 an ounce, a new high and as much as 44.1 per cent year-on-year. The rising gold tide has lifted silver prices admirably as the metal has gained as much as 119 per cent year-on-year, and 6 per cent month-on-month in August.

With gold and platinum trading on par currently, experts see a greater upside potential for platinum in the next 3-4 quarters. But one must hasten to add that gold will retain its sheen and has the potential to shine even brighter so long as the global economy continues to struggle and investors turn averse to risk in other markets.

At the global level, industrial production is just about catching up with levels seen before the Japan disasters and was up 5.5 per cent year-on-year in June. Growth in global IP has been surprisingly in line with movements in the OECD leading indicators over the past few months, despite the impact of the Japanese disasters, remarked an expert.

Although the sentiment may be brightening from time to time depending on the nature of data, the commodity markets, especially growth commodities such as energy and base metals remain sensitive to the macro picture. Despite constructive fundamentals in some cases, if the worst fears of the markets – debt worries and slowing demand – are realised, then prices may experience erosion.

Gold: All precious metals were the big beneficiaries of continuing macroeconomic concerns and investor interest. Gold with a 4.9 per cent price rise and silver following suit with 3.5 per cent rise did well. It must be emphasised that gold prices have traded within a tighter range last few days, but consolidated above $1,800 an ounce.

On Friday, in London, gold PM Fix was at $1,875/oz, a smart rise of 3 per cent over previous day's $1,821/oz. Silver rose by 2.5 per cent to Friday AM Fix of $42.50/oz versus previous day's $41.47/oz.

In the coming weeks, in the absence of sustained positive signals for global economic recovery and continuing strong investor interest, gold prices are likely to venture into unchartered territory. According to information from IMF, central banks continue to be net buyers of gold. Additionally, beginning September, seasonal demand for the yellow metal is likely to grow stronger in markets such as India. Silver is sure to follow suit, despite weak fundamentals.

According to technical analysis, gold broke above 1867 to signal an earlier-than-expected move towards the 1912 all-time high. Above would confirm resumption of the greater uptrend. Silver is testing resistance near 43 and the risk is a move towards the 44.23 peak. The medium term outlook is bullish.

Base metals: The complex continues to be spooked by global growth concerns. Although there has been a year-on-year increase in prices, on a month-on-month basis almost all base metals lost value in August. For instance, copper gained as much as 24 per cent year-on-year, but lost 6 per cent of value in August. On the LME on Friday, the metal closed at $9,057 a tonne. As always, China is the market to be watched closely. Those commodities where China sets the market price, prices have the potential to stay solid.

According to technical analysts, copper may correct lower in the range with a move below 9000 signalling a deeper fall towards 8830 before looking to base. Aluminium has also turned lower and a move towards 2380 should be seen as a buying opportunity. Range-bound trading can be expected in the medium term.

Crude: The markets were slightly buoyant over the week. Demand numbers coming out of major economies (USA, Japan, China, and India) all appear positive. On the supply side, there are geopolitical, structural and technical issues to be sorted out. The market fundamentals are constructive. However, macroeconomic concerns and fear of demand slowdown through worsening sentiment continues to haunt the market.

The technical picture suggests both WTI and Brent run the risk of moving lower before looking for a base at 83 and 108 respectively.

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