Gold may fall further

Led by precious metals and base metals, the global commodity market prices posted a broad-based downward move last week.

Gold was down four per cent over last week plunging below $1,370 an ounce in London on Friday while silver shed 3.6 per cent and platinum 1.3 per cent.

Palladium, however, gained 4.8 per cent to end the week at $736/oz.

Crude oil was no exception to the falling price trend.

Among base metals, nickel was the worst sufferer with a decline of 3.5 per cent, aluminium 1.3 per cent and copper 1.1 per cent.

Interestingly, metals remain the biggest drag on commodities with all the base metals trading at levels below their open for the year.

Although recent data suggest that nominal GDP is improving in the advanced economies, particularly as the influence of quantitative easing increases, the world has surely some way to go before sustained growth is recorded.

So, the big question is when will the growth triggers manifest themselves?

Gold

The market suffered yet another bout of price decline with Friday London gold PM Fix at $1,369/oz, down from the previous day’s $1,381/oz.

Silver bucked the trend on Friday to AM Fix of $22.52/oz versus previous day’s $22.26/oz. Platinum closed at $1,476/oz and palladium $736/oz.

The yellow metal has been buffeted by continuing outflows from physically-backed ETPs and sell-off by less-committed longs.

Net redemptions so far this year are an estimated 395 tonnes. Strength of physical demand has not offered much resistance on the way down.

With equity markets outperforming, it is no surprise that gold is struggling to find traction.

If anything, the yellow metal faces further downside risk as even the seasonal demand is tapering off. At the same time, the policymakers are steadily tightening the noose around gold demand by continuing to impose more restrictions.

The latest is from the Reserve Bank of India which restricts import of gold on consignment basis by banks only to meet the genuine needs of exporters of gold jewellery.

Dealers have turned wary and consumers cautious. Reduction in physical market support due to off-season – agricultural operations from June to September – will also pressure prices lower.

It is now generally agreed that gold prices will hover in the $1,320-1,370 an ounce range in the next few weeks. If the rupee does not weaken markedly, local prices have the potential to further decline towards Rs 25,000 for 10 grams.

Gold demand trend report for the first quarter, released by the World Gold Council, recognised that demand was 13 per cent lower year on year.

Indian jewellery and bar and coin demand grew by 15 per cent and 52 per cent year-on-year respectively.

Finally, Johnson Matthey’s report forecasts a sizeable deficit in 2013 in palladium which means higher price potential. The platinum market is balanced and so, any change in price direction will come from the level of investment demand.

According to technical analysis, gold faces resistance at $1,450 and $1,420 while support is seen at $1,350 and $1,320.

Platinum and silver have fallen in the wake of gold weakness.

Break lower in platinum targets larger range lows near $1,380. Silver following gold lower is threatening to move to $19.50-20.00 levels.

Base metals

The complex has not had a good year so far. Global growth has been unsteady and halting. Currently, the momentum across base metals is weak. Unless there is a price bounce in the next few weeks, the market faces downside risk. On Friday, LME cash aluminium closed at $1,820 a tonne, copper $7,275/t and lead $2,006/t.

LME copper prices have had a roller-coaster ride since last month. Disappointing data from the US, Europe and China in May prompted a sudden sell-off. Copper recently faced some short-covering and many analysts believe there is further upside given the positive demand signals from China and market positioning that is still short. Prices above $7,500/t create an opportunity to short copper.

According to technical analysts, copper faces resistance at $7,800 and then at $7,500 while support is seen at $7,200 and $7,100. The momentum is said to be bearish.

Crude

Bearish fundamentals weigh on prices. Across the demand-supply equation, there are no constructive elements on the horizon at the moment.

The commodity faces a short-term lack of upward catalyst. Brent is likely to continue to hover around the relatively weak $100 a barrel range; but there could be retracement as the market moves towards the tail-end of Q2.

The geopolitical situation seems to be reasonably under control.