Global commodity market participants are closely watching developments in the US, especially tapering of asset purchase by the Federal Reserve.
Although recent US economic data are favourable, it is unlikely that the Fed will do anything in a hurry to disturb the nascent recovery process. At the same time, signals from China, the mover and shaker of the world commodity market, are less-sanguine.
A hard-landing appears to be a possibility. The geopolitical situation is not very stable either.
All these are surely impacting commodity markets in some way or other.
Crude oil prices were boosted last week in the context of geopolitical tensions. Oil WTI was up 2.4 per cent. Brent crude reached $108 a barrel.
Of course, there are reservations if the price improvement will last.
The base metals market bore the brunt of Chinese slowdown fears.
All base metals were down last week by anything between 1 and 2 per cent, with the sole exception of nickel which was up 2.8 per cent week on week.
Among precious metals, silver was the worst performer with price down 1.2 per cent, while gold was up 1.2 per cent, platinum up 1.4 per cent and palladium up 3.8 per cent.
Despite the relatively more positive price performance, fresh investment flows into commodities are hard to come by.
In June, total commodity AUM (asset under management) stood at $349 billion, a 32-month low.
Liquidation of gold ETPs continues to be the main factor driving commodity AUM lower, explained an expert adding that other commodity assets have been much more stable.
Going forward, macro data, especially from the US and China, will continue to influence the market.
The demand-supply fundamentals will continue to assert themselves, especially in crude and base metals markets.
For the time being speculative capital is in the sidelines or has migrated to more lucrative markets such as equities.
So, extreme caution is necessary is taking far forward positions.
Gold: Struggling
Although gold consolidated its recent gains, it has struggled to decisively breach the psychological $1,300-an-ounce mark. The dollar has weakened somewhat, but the equity market is still firm.
In London Friday, gold PM Fix was $1,296/oz, up from the previous day’s $1,283, while silver AM Fix was $19.42 down 0.4 per cent from the previous day. Platinum closed at $1,422($1,413) and palladium $743 ($737).
In the absence of further short-covering activity, upside momentum looks limited across the investor space.
Gold ETP outflows continue unabated. Gold and silver face the most downside risk this quarter.
Analysts are already revising the price forecast down with some leading ones pitching the quarterly average at $1,200.
Metals: Flat outlook
Most base metals finished higher in trading on Friday with aluminium and nickel adding 1.2 per cent on the day, although over the week, barring nickel, the entire complex was down.
On Friday, LME cash aluminium closed at $1,782 a tonne, while copper closed at $6.909 and nickel $14,094. With the China factor operating, supply will once again likely drive surpluses across the complex.
A relatively flat price outlook is seen for the quarter. According to International Copper Study Group, global copper market has been oversupplied. At the same time, global copper mine output is estimated to have risen by 9 per cent year-on-year in the first four month this year.
Technical picture suggests copper faces resistance at 7,200 and 7,050 while support is seen at 6,835 and 6,600. For nickel, the momentum is bullish which strengthens probability of a break targeting 14,700.
Crude: bearish
The move-up in oil prices is expected to run out of steam as weak demand caps the upside. Brent crude may average slightly below the current levels.