Last week’s big news was the decision of the US Federal Open Market Committee to continue to support economic growth by helping expand liquidity through purchase of Treasury securities in addition to the earlier purchase of mortgage-backed securities both of which will see an influx of $85 billion a month. The highly accommodative stance of the monetary policy is set to continue until economic recovery strengthens. The Federal fund rates also will continue to remain unchanged, but the guidance will be tied to economic performance especially employment.
Additionally, the US industrial output expanded more than expected in November posting its sharpest increase in nearly two years. Production has bounced back from the disruptions of Superstorm Sandy. Chinese data for early December turned out to be positive.
The global commodity markets have taken cognizance of all the developments. The metals complex closed the week on a mixed note. Among precious metals, gold was down week-on-week despite announcement of further bond purchases from the US Fed notwithstanding a rise to about $1,720 an ounce. On the other hand, base metals were generally up with tin showing the strongest performance with gain of 6.4 per cent to close at $23,109 a tonne on Friday on LME reflecting a tight stock situation. This was followed by lead and zinc with modest increases of 3.8 per cent and 3 per cent respectively.
Interestingly, iron ore prices have been rising and over the week gained 7 per cent to trade at $130/tonne, levels seen last in July after which prices gradually dropped to as low as $90. According to experts, iron ore price changes reflect a classical V-shaped recovery.
The next three weeks will witness a general holiday mood around the world with Christmas and New Year celebrations. In the US, the fiscal cliff continues to hang like a sword. If resolved amicably, a strong and broad-based rally across commodities may become possible. Market fundamentals of individual commodities will surely come into play.
Gold may gain
As has been the trend over a good part of the year, gold failed to capitalise on the positive macro backdrop.However, it is a matter of consolation that gold has endured profit-taking as year-end approaches.
On Friday in London gold PM Fix was $1,696 an ounce, edging up from the previous day. On the other hand, AM Fix for silver saw price 0.5 per cent lower at $32.52/oz.
Investor interest in the yellow metal has diverged. Retail demand is strong as evidenced by ETPs continuing to scale record highs; but tactical positioning has become weaker. Physical demand remains lacklustre although it has not deteriorated. There is huge expectation of central bank buying. Many factors are stacked in favour of gold in the global marketplace; but it is anybody’s guess if the precious metal would actually gain.
Going forward, gold is likely to face resistance at 1,713 and at 1,723, while support may be available at 1,684 and then at 1,672. According to technical analysts, a move higher in range for silver can be expected while buying interest underpins near 32.20. Above 33.80 would target the 34.40 range highs. Gold would be a good buy on dips against the 1,670 area for a move toward 1,755 and then 1,800. The medium-term outlook is said to be bullish.
Base metals
In the first fortnight of December, base metals prices have generally moved higher, triggered by some positive macroeconomic data emanating from the US and China. On the LME on Friday, aluminium closed at $2,198/tonne, lead at $2,284 and tin $2,3109.
Whether the price trend and performance is sustainable is a big question. Some short covering and creation of some long positions helped the price move. Discretionary investors have by and large remained in the sidelines. This reflects the divergence between stagnant market fundamentals and upward movement in prices. For instance, copper and nickel markets are in surplus.
According to technical analysts, in contrast to the bullish outlook for tin, copper is set to move lower in range toward 7,900 area. For aluminium, upticks against 2,210/2,250 will trigger a move toward 2,045/2,075 area. The medium-term outlook is said to be bearish.
Crude: Directionless
The market recovered slightly over the week with the front month Brent moving back to the familiar $108-111 a barrel price band. The market continues to search for a catalyst for directional momentum, commented an expert.
Technically, support building over 105.80 helps to retain a bullish outlook for Brent. A close above 108.20 would confirm upside within range toward the 110.20 area next. For WTI, support near 84.50 will underpin a move higher in range toward 90.30. The medium-term outlook is said to be neutral.