Towards the close of 2011 and indeed at the start of 2012, the question uppermost among global commodity market participants was the outlook for commodities demand and by implication, commodity price movements in the months ahead.

Clearly, in recent months, the risk appetite of commodity market participants has not exactly been robust. Economic uncertainties, particularly the unresolved European sovereign debt crisis and worries over a possible Chinese slowdown have no doubt weakened the sentiment and market outlook. Amidst the dark clouds, rising industrial production is a silver lining. Importantly, macro data from the US are encouraging. The positive jobs data published on Friday provided a much needed fillip.

Historically, the strong positive correlation between industrial growth and commodity consumption (especially growth commodities such as energy products and base metals) is of course well known. A general consensus seems to be emerging about global growth prospects in 2012 and especially industrial production, which if realised would result in higher bulk commodity prices from the present levels.

As the mover and shaker of the world commodity market, China's growth momentum will of course be closely watched. In terms of price action, one can reasonably expect a slow start to the year. However, portends are ominous. China's monetary policy is loosening and the yuan has gained strength making commodity imports cheaper. Additionally, restocking demand is sure to emerge sooner rather than later. At the same time, the tail risks from Europe appear to be lessening. Although demand pick up may not be robust but slow, apprehensions of demand destruction have considerably waned.

At the same time, geopolitical tensions have been escalating with implications for crude prices. So, for the time being investors are still cautious and in the near-term seem to prefer highly liquid assets. The sentiment can change with sustained flow of positive macro data.

Gold: Last week, the precious metal gained 2.7 per cent although prices dipped below $1,600 an ounce at some stage. On Friday, the London PM Fix was $1,617/oz, up from $1,599/oz of the previous day.

Silver performed well with a weekly gain of 4.3 per cent. London AM Fix on Friday was $29.40/oz, up from $28.92/oz the previous day. Gold entered the New Year with a price correction of about 18 per cent from the highs of early September 2011. With risk aversion being the season's flavour and the dollar strengthening by the day and physical markets in major consuming countries showing no healthy signs of a demand pick up, the yellow metal has been under pressure. Preference for cash and long liquidation has exerted severe downward pressure. The situation is likely to continue for some more time. The dollar is less-likely to erode in the near-term, while real interest rates are likely to remain near-zero.

According to technical analysts, the first quarter holds a positive bias for gold but target/resistance between 1632/34 remains. Silver has already turned from resistance to the target area near 30/31. The medium term outlook is neutral.

Base metals: The complex had a strong end to the week with copper, nickel, aluminium and zinc prices rising in the wake of a positive US jobs report. According to some analysts, the sentiment was bolstered by the PBoC (China's central bank) decision to suspend bill sales until after the Chinese new year, helping to inject cash into the country's money markets. But over the week, tin gained 3.4 per cent and lead lost 3.8 per cent in value. Copper LME cash was $7,569 a tonne on Friday.

Despite the ongoing worries over Europe, there seems to be optimism about global growth prospects in the coming months. If industrial production does continue to pick up, base metals demand is sure to get a boost which in turn will have implication for prices. Supply side issues continue to be a matter of concern. According to technical analysts, as lead continues to trade heavily, one can expect it to soon be testing range support between 1909 and 1939. Copper is stuck in a contracting range between 7248 and 7752.

One has to look for a break to suggest further traction. Expect range trading in the coming days.

Crude: Tension surrounding Iran continues to support global oil prices. Experts are bullish on WTI. Their expectation is based on continuing fall of inventories at Cushing and all-time high spare storage capacity.

Technically, the picture suggests a dip in WTI is testing support near 101. A move below would open up 98 area where buying interest can be expected to emerge. The target is 104 area. The medium term outlook is neutral.

> gchandra@thehindu.co.in

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