Last week was characterised by positive price action in which most global commodities gained in value having been driven by improving sentiment and weakening dollar.

The entire metals complex was a gainer with base metals and precious metals both registering week-on-week price increases. Grain markets are stabilising although price action remains choppy. Crude oil prices were range-bound.

Among base metals, lead registered a gain of 8.7 per cent while copper improved the least at 2.7 per cent over the week. Gold was up 1.1 per cent and silver 2.4 per cent.

There is reason to be positive on the outlook for most of the bulk commodities and metals during the year.

From the present levels, prices are expected to move northward given expectations of favourable conditions going forward. According to experts, precious metals and iron ore, and to a lesser extent lead, zinc and copper stand out in terms of absolute upside from the present levels.

Upswing in global economic activity in the coming months is sure to boost commodity market sentiment.

Importantly, prices for precious metals, copper and iron ore as well as coking coal are expected to continue trading well above cost and generating stronger producer cash flows across these industries. However, from the present levels, outlook for coal prices is said to be negative.

In agriculture, for the near-term, weather conditions in South America will be the driver. After dry conditions created a scare, recent rains have eased fears about the extent of crop damage caused by La Nina.

Gold: In the first three weeks of 2012, gold has regained some of the ground that was lost towards the end of last year when prices tested the lowest levels since July. The yellow metal has had to overcome barriers such as dollar strength, loss of risk appetite and need for liquidity.

The big news last week was India hiking customs duty on gold and silver import, a move that ought to have months ago. The duty will be ad valorem rather than specific.

At current price levels, the duty on gold goes up from Rs 300 for 10 grams to about Rs 540. On silver, the duty (6 per cent ad valorem) doubles to Rs 3,000/kg at current prices.

In London on Friday, gold PM Fix was at $1,653 an ounce virtually unchanged from the previous day's $1,655/oz. Silver edged lower on Friday with AM Fix at $30.36/oz, versus $30.79/oz the previous day.

Where does gold from here? To be sure, gold's key pillars of strength remain intact. Negative real interest rates, rising long-term inflationary expectations and importantly, central bank buying are expected to support investment demand.

Most likely, towards the second half of the year, the precious metal will test new highs; but the ride towards and test of $2,000/oz is sure to be bumpy with profit-taking along the way. Currently, the key to gold price direction is the US dollar.

According to GFMS gold survey 2011 (II update) released recently, total demand is set to outpace rising supply. Jewellery demand proved to be resilient even as prices rose and is expected to fall by a modest 3 per cent in the first half of this year. The decline will be accounted for largely by India.

Official sector demand reached 430 tonnes, five times the 2010 levels and GFMS has forecast net buying of 190 tonnes in H1 this year. The agency expects gold prices to touch new highs in 2012 and forecast an average of $1,640/oz in H1.

According to technical analysts, risk for gold is that resistance near 1700 caps a move lower in range. A break below 1640 would confirm downside, creating a target of 1600. Silver seems to outperform gold. A clear break above 31.10 opens target in 32 area. The medium term outlook is neutral.

Base metals: The entire complex has had a decent start to 2012 with the sentiment buoyed by improved perceptions of the macroeconomic environment and constructive fundamental data. Copper has been a star performer so far.

Prices have risen over the week. LME cash copper was $8,207/tonne on Friday, the highest level since September 2011. However, it is reported that copper stocks at Shanghai exchange have increased to a total of 131,600 tonnes, driven in part by a sharp decline in utilisation rates by home appliances and cable manufacturers since December, ahead of the Chinese New Year.

It is important to remember that base metals could turn out to be major beneficiaries if the global growth momentum performs above expectation. However, the situation is not without risks. Concerns over European sovereign debt and continued fears over Chinese demand cannot be wished way. In case of aluminium, rising production costs have to be reconciled with depressed price levels.

Production cuts to the extent of 1.3 million tonnes a year have been announced. So, supply constraints may support prices.

According to technical analysts, the upward move in copper looks to have stalled under the target area of 8500. Closing back below 8280 creates the risk of move towards 8000. In the medium term, range-bound trading is expected.

Crude: The market remained range bound last week. Despite the fact that macroeconomic data are positive for the US and not so for Europe, apprehension of demand decline in the US has surfaced for reasons unclear at present. Technically, there is reason to be bullish on Brent crude.

While buying on dips, one may look for a move above 112.75 to confirm to a test of next target neat 114.80. Below 97.60 in WTI risks a dip towards 93 before a greater bullish trend is resumed.

gchandra@thehindu.co.in

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