In the global commodity markets, prices were mixed last week. However, some developments stood out.
Although base metals traded in a range, aluminium outperformed on the week rising by 2.3 per cent to $2,127 a tonne.
Weeklong Lunar New Year holidays in China meant muted trading activity particularly in metals. All precious metals except palladium suffered price falls with silver facing a steep 4.3 per cent decline followed by gold (-3.4 per cent). On Friday, gold fell to an intra-day low of $1,598 an ounce, lowest since mid-August 2012. On the other hand, front month brent had a generally positive week holding on to the recent price gains triggered by geopolitical concerns.
While the Eurozone GDP data last week did not inspire confidence, the US industrial production data suggested that economic recovery remained fragile.
At the same time, the US consumer confidence increased to a 3-month high, supported by rising property prices, an improving jobs market and equities indices at multi-year highs.
Experts see this as positive trend that will help maintain momentum in consumer spending which in turn contributes to economic activity. It also has implications for the commodities market in terms of demand and prices.
Importantly, as for investments in commodities, it is reported that withdrawal of funds is slowing. The asset under management is still in excess of a healthy $400 billion despite some recent withdrawals.
Indeed, the market is six weeks into the new year, yet there are no obvious trends for investors to latch on to, as an expert pointed out. While global growth prospects remain uncertain, despite flickering hope of recovery, the market is still groping for a clear direction. Whether return of the Chinese after the holidays will trigger a directional change in commodity prices remains to be seen. Notably, Chinese economic data for January were somewhat stronger thane expected.
Gold
Weak physical demand, strengthening US dollar, rising equities market and limited hope of higher returns have all combined to put intense downward pressure on gold prices.
Investors have turned wary and are not any more buying the attempts by producer groups and investment advisors to prop the metal up. Last week was eminently forgettable for the precious metals complex. Gold lost 3.4 per cent over the week in London with Friday PM Fix of $1,612/oz versus $1,646/oz the previous day. Silver was down 4.3 per cent on the week with Friday AM Fix at $30.18/oz versus previous day’s $30.88/oz. Platinum ended the week at $1,676/oz and palladium at $754/oz. At this point of time, gold appears to be without a strong driver especially from the demand side even as investor conviction is seen waning. The effects of QE3 have all but petered out. Physical demand from India and China has eased. If anything, the Indian government officials are constantly issuing threats of further restrictions on gold imports.
According to the World Gold Council, global demand softened in the latest quarter of 2012. Demand from China is expected to remain steady.
Interestingly, platinum group metals have outperformed gold and silver, supported by constructive fundamentals. Last week, platinum prices widened their premium to gold by $75 an ounce. Improving macro data are sure to support industrially useful precious metals. Gold is not one of them.
However, despite recent spikes, precious metals prices are not without downside risks. While investor interest is the key, continued weakness in demand particularly in Europe is a cause for concern. Also, record high speculative interest for platinum and palladium creates downside risk should investor attention digress. According to technical analysts, gold daily trend is bearish and momentum is oversold. The metal is likely to face resistance at 1,654 and then at 1,625, while support is seen at 1,584 and then at 1,547. A break below 1,584 would target 1,525 before looking for a base.
Base metals
Prices have remained in a holding pattern as the market awaits return of China after the holidays. Last week, LME cash price of zinc dropped by 1.6 per cent to $2,147/t. However, aluminium gained 2.3 per cent to close at $2,127/t. The move largely stemmed from technical trading and from some buying, although the underlying fundamentals point to a surplus.
Admittedly, there is some difference of opinion whether the aluminium market is in surplus or balanced for 2013.
According to technical analysts, lack of upside follow-through along with momentum divergence in zinc signals a dip within range toward 2,145 and then 2,100. The market is likely to hold on to the recent gains despite a slightly weakened macroeconomic sentiment following poor Q4 GDP numbers in Europe. While the demand-supply equation is constructive, the geopolitical instabilities raise the upside risk to prices.