Global commodity markets came under renewed pressure last week with hardening macroeconomic concerns. The sentiment has turned decidedly weak and markets have turned choppy. Despite this, the dollar strengthened and equity markets recovered which resulted in gold prices slipping below $1,800 an ounce. In the oil market, the focus continues to be on the prospect of declines in the demand growth rate.

The latest OECD composite leading indicators (July 2011) have signalled widespread slowdown in economic activity covering most OECD (industrial) countries and major non-member economies. The indicators are designed to anticipate turning points in economic activity relative to trend.

Overall, the sentiment is still fragile in the wake of continued high levels of unemployment in the US, unresolved sovereign debt issue in some European countries and continual tightening of credit in major emerging economies to fight inflation.

No wonder, commodity fundamentals have receded into the background and the market is in the grip of uncertainty. When and how clarity will emerge is hard to tell. Markets of commodities such as bullion, crude and major base metals are likely to be choppy in the next several weeks. For those with high levels of exposure, it would be advisable to maintain caution as the market lacks direction. A sustained flow of positive data is necessary to regain confidence.

Gold: Last week, all precious metals saw values slipping. While silver was down 3.5 per cent week-on-week, gold fell 3.1 per cent. Platinum and palladium declined by 2.4 per cent and 2.1 per cent respectively.

Specifically, gold prices slipped below $1,800/oz as the dollar's strength and recovering equity markets weighed on prices. Less-committed longs exited the market in a hurry.

On Friday, in London, gold PM Fix was at $1,794/oz, slightly up from the previous day's $1,782/oz. Silver, on the other hand, fell to an AM Fix of $39.97/oz on Friday from the previous day's $40.34/oz.

As gold prices fell, physical demand, especially from price-sensitive Asian markets, has emerged and cushioned the downside. The market has entered the seasonally strong demand period with a series of festivals in India when gold jewellery sales pick up.

Despite the recent correction which actually offers a buying opportunity, one can remain positive on gold as uncertainty looms over Europe and the problems of the US are far from over. Financial markets are yet to demonstrate resilience. On the other hand, the precious metal enjoys the official sector support.

Silver continues to piggyback on gold, but surely lacks the same downside support because of its weak fundamentals. Silver prices are likely to remain volatile, and any correction in gold will have an exaggerated impact on silver.

Base metals: The complex continues remain sensitive to the macro picture which is far from pretty. No wonder, price weakness marked the complex last week as copper (1.5 per cent), lead (3.6 per cent), tin (1.7 per cent) and zinc (1.4 per cent) lost value last week. Nickel was an exception rising 1.7 per cent week-on-week. LME inventories of nickel and tin saw large relative draw downs.

In the short-term, further weakness cannot be ruled out as the concerns over debt and slowing demand persists. Despite tightening fundamentals (supply constraints), copper prices have failed to recover simply because of macro worries. Any evidence of improved macro performance will propel the metal higher in no time.

Zinc market is expected to remain in a state of oversupply for the next 12 months or so. Firming lead prices indicate early signs of emerging demand in China.

Crude: The market witnessed range bound trading during the week. Participants are still concerned about weakness in the macroeconomic environment and potential demand destruction. The shortfalls in non-OPEC supplies are reported to be mounting. Energy market will continue to be impacted by the macro picture.

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