Buffeted by the twin storms generated by the US Federal Reserve’s unequivocal indication of a gradual winding down of QE3 combined with Chinese authorities’ intention to squeeze the shadow banking sector (which could weaken economic activity) and drop in forex inflows, the global commodity markets turned nervous with a huge sell-off across commodities.

Precious metals

Gold and silver were the worst hit in terms of price collapse with the speculative froth reduced further.

On Friday in New York, the yellow metal traded below $1,200 an ounce intraday and silver followed suit trading below $18/oz.

Firmer than expected US housing data and strengthening dollar aided the price fall.

Going by Fed Chairman Ben Bernanke’s statement linking the end of asset purchases to the unemployment rate trajectory, there is now belief that tapering may commence as early as September.

On Friday in London gold PM Fix was $1,192/oz, a fall of 3.3 per cent from the previous day.

Platinum was $1,317/oz, retaining its premium over gold by more than $100.

China’s commodity imports in May continued to remain subdued with key commodities including oil, refined copper, soyabean and corn in a negative territory year-on-year.

With the country’s GDP growth scaled down, China’s appetite for commodity consumption may be withering, commented an expert. What June data brings remains to be seen.

Gold suffered alongside a sharp fall in equities last week in the wake of a hawkish statement of the Fed chairman.

The price fall in gold is as much as 30 per cent so far this year.

Silver has also been battered having lost nearly 40 per cent in value year to date. Both platinum and palladium are also down, but platinum has maintained its premium over gold. The dollar has begun to climb up.

With prices falling to around $1,200/oz levels, more gold in ETF has become cash negative, triggering further sell-off in days to come.

The volume is estimated at over 100 tonnes. So far this year, about 490 tonnes of the yellow metal have moved out of ETPs.

While physical demand absorbed a substantial part of ETP outflows in recent months, it may decelerate over the next three months as seasonal factors come into play, especially in markets such as India. Clearly, the sentiment towards gold has turned negative.

India which has often been the saviour of the gold market is facing several import related restrictions in addition to a rapidly sliding rupee neutralising the fall in dollar prices.

With steady fall in prices, consumer psychology would be to await further price fall.

This is borne out by the fact that while investors stepped in during the mid-April price fall to around $1,320/oz levels, they are now unwilling to go for bargain hunting because of expectation of further price correction.

So, low inflation in the US, booming equities and Fed QE have combined to enervate the gold bulls.

The Comex speculative net long positions have fallen sharply. Technically too gold looks bearish. Resistance is seen at $1,300 and then at $1,225 while support is seen at $1,150 and $1,100.

In base metals, Chinese growth downgrades have been quickly factored into prices.

Large short positioning is seen in copper which potentially creates an opportunity for a price bounce.

Nickel too presents a similar picture.

So experts favour selling into rallies. Technically copper looks bearish.

Resistance is seen at 7,000 and 6,850 while support is at 6,600 and 6,500.

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