Global commodity markets are currently facing uncertain times what with broader environment of slowing growth especially in large emerging markets, improvement in supplies and inventory builds across a number of markets even as the threat of tightening liquidity, especially in the US, is looming large.
No wonder, the appetite for investment is somewhat dampened. This is borne out by the fall in the value of asset under management which from a peak of over $400 billion has declined by about 10 per cent this year.
At the same time, on current reckoning, there appears no major risk of a renewed bout of commodity inflation in the medium-term. This should prove positive for emerging markets such as India and China which are commodity-import dependent and whose currencies are weakening.
Notwithstanding anything else, the most crucial factor that is likely to impact commodity markets and investment climate is the US Federal Reserve decision of tapering the QE.
Last week, global commodity markets displayed mixed performance with precious metals taking some beating.
Silver was the worst hit with a decline of 2.8 per cent while gold was down 1.6 per cent on the week due mostly to better US economic data.
Palladium closed nearly flat. Platinum was an exception with a marginal rise of 0.6 per cent.
All base metals were generally up over the week with standout performer tin rising by a whopping 8.7 per cent followed by lead 3.3 per cent and copper 2.1 per cent. Oil WTI was up 2.3 per cent.
Going forward, data from emerging markets such as China need to be watched closely.
According to reports, CFTC-managed money positions in oil and refined products are very elevated; and any negative news flow or weaker macro data could lead to profit taking. In precious metals, investors hold a large net long position in palladium, but in platinum positioning is a lot lower.
However, there are supply side risks to platinum given the ongoing wage negotiations in South Africa.
The markets are still groping for direction. Steady flow of positive macro data is sure to bring back confidence among market participants.
Gold: Range-bound
A more dovish-than-expected comments from the Fed, weaker dollar and US treasuries easing have supported gold and held prices above $1,300 an ounce.
At this price level, the cash-negative ETP holdings are minimal and so outflows have nearly ceased.
In London Friday, gold PM Fix was $1,309, down from the previous day’s $1,315. silver moved in tandem with Friday AM Fix of $19.46 versus previous day’s $19.72. Platinum at $1,436 and palladium at $730 closed flat.
In the coming days, gold is likely to trade in a range. ETP outflows are likely to taper off. The metal needs a fresh trigger for a directional change. Silver is a lot more vulnerable to downside risk given its huge physical market surplus.
Physical demand conditions for the yellow metal are nothing much to write home about. Arrivals into India have slowed down considerably following the government’s clampdown on gold imports, financing and sales.
Aggregate imports are slated to decline from last year’s level of about 845 tonnes. With the prospect of good harvest brightening, physical demand has the potential to return after September.
Metals: stable outlook
Slow global economic growth in general and slowing Chinese growth in particular continue to haunt the complex.
On Friday, LME cash copper closed at $6,990 a tonne, aluminium $1,765 and lead $2,110.
The technical picture is: copper faces resistance at 7,225 and then 7,120 while support is seen at 6,865 and 6,720.
The move above July range highs makes lead and tin clear base metal outperformers. For lead, the target is 2,155 and then 2,200.
Crude: may rise
Supply shortfalls in the crude oil market mount.
A combination of OPEC and non-OPEC supply shortfalls, along with the seasonal strength in demand is tightening the third quarter oil market balances.
Hurricane season creates its own supply side risks.
Prices are likely to stay elevated in Q3 but by Q4 the upward momentum in prices is likely to fade, with seasonal strength in demand slowing.