In week of general improvement in the global commodity market prices, energy products and agricultural crops made notable gains in the wake of anticipated lower harvest of grains and oilseeds resulting from adverse weather in different parts of the world including a devastating drought in the US Midwest drought.
The USDA made huge cuts in corn and soyabean yields. For the crude markets, choppy conditions were underpinned by tightening fundamentals amidst potential geopolitical instability in West Asia which pushed the market higher.
Metals markets in general registered mixed performance over the week.
Gold has continued to struggle to break free of the upper end of its trading range, having been disappointed by the lack of positive outcome of the last FOMC meeting.
While silver was the best performing metals with a rise of 2.3 per cent, nickel and zinc dropped 1.4 per cent and 0.5 per cent respectively.
Latest composite leading indicators continue to point to an easing of economic activity in most major OECD economies and slowdown in most major non-OECD economies. The growth momentum is seen fading in the US and Japan.
As for emerging markets, data from China, India and Russia point to a slowdown. The strong positive correlation between economic growth and consumption of growth-driven commodities such as steel, base metals and energy products is of course well recognised.
Problems dogging the world economy remain stubbornly unresolved. European sovereign debt crisis, apprehension of Chinese slowdown, inflation fears driven primarily by supply side issues, concerns over judicious resolution of growth versus inflation dilemma and geopolitical instabilities continue to haunt.
Going forward, although there is a sense of anticipation that demand would improve towards the end of the second half, for that to materialise, flow of positive macroeconomic data is necessary. Market participants have to watch for signals.
Gold: Prices have continued to generally trade above $1,600 an ounce; but the metal has clearly struggled to break free of the upper-end of its trading range. The strength of the US dollar and fragile demand conditions in the physical markets are surely exerting pressure.
Poor Indian monsoon and anticipated fall in rural incomes combined with a weak rupee has kept domestic prices at unaffordable levels for the jewellery consumers.
On Friday in London the PM Fix was $1,619/oz, slightly up from the previous day’s $1,615/oz. For silver, Friday AM fix was at $27.88/oz, down 0.5 per cent from the previous day.
Currently, there are no fresh triggers for the precious metal to move higher. If anything the market is searching for the next catalyst. The next source of succour could be FOMC meeting in September. Until then, of course, the market will be at the mercy of physical demand and ETP holdings. One can expect the market to trade in the $1,560–1,640 range for the time being.
The silver market is in surplus this year (estimated at 3,000 tonne ) and is expected to remain so next year too (4,000 tonne ) according to analysts. So, price movements are dictated by investor appetite in general. Given gold’s muted performance, silver’s surplus is seen as a drag. Under these circumstances, silver’s price performance will heavily depend on gold’s.
According to technical analysts, gold is supported within range and one can look for a move toward range highs near 1,640. A move above this is needed to make for a bullish dash toward 1,700 area. In silver, above 28.50 opens resistance near 29.00 which is expected to cap. The medium-term outlook is neutral.
Base metals: Disappointing economic data seen in recent months have weakened the overall sentiment and caused base metals prices to slide lower. China is the mover and shaker of this market and latest trade data presented a mixed picture. Inventories in some cases are rising. The overall mood in the global marketplace is far from upbeat. Price prospects obviously depend on improvement in economic activity in H2.
China is key and recovery in Chinese demand through supportive policies is sure to boost prices. On LME, copper closed Friday at $7,484 a tonne.
According to technical analysis, selling interest near 1,915 in aluminium encourages a bearish view. Below 1,828 opens target near 1,776. For copper, a move below 7,215 is needed to break the range and signal further downside toward 7,100. The medium-term outlook is bearish.
Crude: The markets remain choppy, but the recent uptrend is still in place. Fundamentally, the market is seen tightening with brighter demand prospects and weak non-OPEC performance. The geopolitical situation is again heating up and can potentially trigger a price rally.