For the global commodity markets, the most significant developments last week were Hurricane Sandy and the increase in the US non-farm payrolls beating expectations and carrying a positive message.
October data showed an increase of 1,71,000 jobs, far higher than the expectation of about 1,25,000 jobs increase. Importantly, manufacturing and construction industries added 30,000 jobs, the largest addition in these industries since January this year. The US automotive sales are up too.
No wonder, the US dollar immediately rallied, pulling down prices of a range of commodities in the metals sector including precious metals and base metals.
Indeed, gold prices fell to their lowest level since August, declining below $1,700 an ounce.
Copper was weaker over the week, while lead prices made strong gains of four per cent on the back of tightening stocks.
Expectations from the ensuing US presidential elections are also impacting the market.
Investors seem to believe in a more promising growth outlook under Romney win in spite of their concerns over a likely tighter monetary policy stance. Obama win will be perceived as preserving the status quo, surveys have revealed.
Under Romney, the biggest economic/policy concern is tighter Fed policy followed by fiscal tightening. Gold prices could take a hit in the wake of profit-taking in the event of a Romney win.
Clearly, the QE3 effect may have already run its course and got diluted. No wonder, prices have fallen back.
For the energy and industrial metals market to rally, it is absolutely essential that financial market risks fade or a strong signal that growth is picking up is available.
Of course, market fundamentals will come into play.
Commodities in surplus such as aluminium are unlikely to rally even if growth picks up. Overall, the market situation is still dicey.
Extreme caution is necessary.
Gold
Positive US jobs data helped the dollar to rally on Friday which in turn put pressure on the yellow metal.
In London, on Friday, gold PM Fix was at $1,685/oz, down 1.8 per cent from the previous day.
Silver followed suit with Friday AM Fix at $31.92/oz, down 2.3 per cent from the previous day.
Although ETP gold holdings are close to record highs, short-term investor positioning has been scaled back ahead of the US elections. According to experts, the investor space remains a positive for the gold market. Speculative positioning has eased in Comex gold to a six-week low. The demand side is nothing much to talk about given the high market prices in India and elsewhere. Diwali festival demand is reported to be lukewarm.
Base metals
In terms of price movement, the complex has largely stabilised over the past week after a month-long weakness. Macro data suggest China is stabilising.
Reports suggest that copper may benefit from home appliances sales in China.
Lead is seen as the positive outlier in the base metals complex.
Overall, demand growth remains a major concern. A sustained flow of positive macroeconomic data is necessary to boost the sentiment.
Crude
Markets traded in a narrow range last week, and volumes were limited. The US market is still gauging the effects of Hurricane Sandy.
The hurricane is said to have had a more pronounced influence on the oil products market given its impact on oil terminals, pipelines and refineries.