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Gold struggles; silver slides, base metals falter


Growth concerns have once again begun to dominate the mood in the global commodity marketplace. As a result, last week, energy, metal ad agricultural prices came under renewed pressure. In particular, there is widespread concern and uncertainty about how China’s growth will pan out in the coming quarters. Other major economies are not doing too well either. The QE3 induced liquidity driven rally has all but petered out.

All LME metals fell over the week with zinc the biggest loser at -2.7 per cent. In London, all precious metals prices nosedived with silver losing as much as 4.3 per cent, platinum 2.7 per cent and gold 1.7 per cent. Crude oil markets traded in a narrow range over the week without any significant directional momentum. In agriculture, prices of soft commodities such as sugar and coffee continue to be weighed down by weak economic outlook. ICE sugar prices fell over 5 per cent last week, pressured by global sugar surplus and weaker import demand. Coffee prices declined by 1 per cent due to good crop prospects in Brazil.

The annual meeting of major stakeholders in the metals market at the LME Week did not throw up any great surprises. Demand concerns, inventory levels and supply prospects dominated the discussion. It is known that China is sitting on large inventory of many metals. How soon the Asian giant will destock and then begin to restock is something everyone is wondering about.

So, in the coming weeks, one can safely expect that the global commodity markets will continue to be concerned about the sluggish demand outlook. Leading indicators are not supportive. Recovery in Chinese growth is the key to market and price prospects; and many believe the prospect of any pick-up over the next three-four months is not exactly bright. In other words, growth commodities are likely to be under pressure.

That leaves precious metals and agriculture. No doubt, dollar weakness, concerns about currency debasement and negative real interest rates should support further gains in gold, for instance. However, investor interest is the key to price performance. Physical demand is nothing to write home about. Tightness in corn and soyabean supplies will ensure firm prices until evidence of demand adjustment and supply prospects emerges.

Gold: Prices have broadly remained under pressure even as the yellow metal has moved further away from the much touted $1,800 an ounce mark. In London on Friday, gold PM Fix was at $1,737/oz, down from the previous day’s $1,743/oz. Silver followed suit with Friday AM Fix at $32.33/oz versus previous day’s 32.99/oz. Platinum ended the week at $1,633/oz (Friday PM Fix).

Silver market is in clear surplus; but the metal has tagged on to the coattails of gold. So, silver prices run the risk a sharper correction in the event gold fails to find upward traction. There are signs that the physical market is beginning to take interest in the yellow metal, especially given the ongoing festival season in India. Yet, the mood is far from upbeat.

Investor interest has started to show signs of fatigue, an expert has argued. Gold ETP holdings have fallen but still remains at elevated levels. Gold bulls are perhaps losing their patience if one went by the information that speculative short positions in Comex gold have risen to a six-week high. At the same time, net fund length remains at its highest level since August 2011. So, in the coming weeks, expect gold to continue to struggle. Trading will most likely be range bound within the broad $1,725–$ 1,775 levels.

Base metals: At the annual LME meet in London last week, it was clear producers, consumers, traders and investors gathered were cautiously optimistic about the underlying demand trends although on current evidence, demand concerns are pervasive. Warehoused inventories and supply growth will also continue to be topics of discussion for some time to come. While there may not be a case for turning utterly bearish, there is equally no case for turning bullish either. In such a market, even a small change in either demand or supply will exert a disproportionate impact on prices.

On Friday, in London, aluminium closed at $1,946 a tonne and copper at $8,010/t and zinc at $1,846/t. Clearly, the aluminium market is in surplus and is expected to stay bearish. But copper and lead could provide upside surprises in 2013.

Crude: The oil market fundamentals remain fairly balanced. Overall, in terms of price momentum, experts expect the US elections to be a key inflexion point, with geopolitical risks to the supply system expected to gain further attention by the markets and getting priced in more actively.

Have a good one.

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