Witnessing a relatively less exciting week, global commodity markets displayed mixed performance. The most important news was the positive surprise from US data. In January, the US created jobs at the fastest pace since early 2011 with non-farm payrolls rising by 243,000 in the month and unemployment falling to 8.3 per cent.
With subdued geopolitical noise, crude oil prices continued their long sideways movement, while base metals continued to be broadly supported by macroeconomic data. Week-on-week, prices of most base metals (aluminium, nickel and lead) were in the negative territory although the complex had a strong end to the week closing higher across the board following positive US data.
Copper closed up 2.6 per cent at $8,539 a tonne, while zinc jumped 2.9 per cent to $2,139/t. In contrast, gold fell to $1,734 an ounce although week-on-week the metal was up 0.5 per cent and silver up 1.3 per cent. In general, precious metals on their part continued to extend price gains during the week. Palladium was a star performer rising 3.9 per cent to finish back above $700/oz.
There is reason to believe that globally investors are overweight on base metals and precious metals this month. After the short selling in late 2011, base metals have rallied so far. The global business confidence seems to be improving and the market returning to fundamentally justifiable levels.
Gold market sentiment has turned positive with inflows to physically backed ETPs picking up again and the Fed's guidance about monetary policy. The precious metals market has the potential to be an outperformer in Q1.
Gold: The metal has extended its gains as the dollar has weakened. Improving physical demand is reportedly cushioning prices of gold. Silver investment has picked up robustly so far negating the industrial outlook. This is seen boosting prices.
In London on Friday, gold PM Fix was $1,734/oz, down from the previous day's $1,751/oz. On the other hand, silver was stronger on Friday with AM Fix $33.93/oz, up from the previous day's $33.67/oz.
According to technical analysts, there is reason to be bullish on gold and would recommend buying on dips against 1,700, looking for a break above target near 1,765 which will open the next target of 1,805. Support near 33.00 underpins bullish view for silver toward target of 35.70. The medium-term outlook is neutral.
Base metals: Although base metals prices have rallied so far this year, there are doubts over the sustainability of prices. Total inventory levels across the six main LME metals have reached a new high of 10.7 million tonnes. On the other hand, demand remains steady but not aggressive. Whether physical market participants will restock at current prices is debatable.
There is potential for a short-term retracement in prices, according to some experts. Global macroeconomic data will continue to be a key determinant of price direction together with Chinese consumption demand, which can slow after heavy imports in the last quarter.
Although copper fundamentals signal bullish trend, in the near-term, demand conditions may force a price correction towards $8,000/t levels at which stage there could be buying interest. At the same time, aluminium, lead and zinc markets are running a mild surplus which means prices may have to move back a little to attract further buying interest. According to technical analysts, a break above 8,680 in copper would signal a sooner than expected rally towards 9,000. However, a range with near-term risk toward 8,180 target can be expected. Downside risk for aluminium is toward 2,130 before looking for a base. Medium-term outlook is range bound trading.
Crude: The Iranian situation remains tense. Mild winter weather in most parts of northern hemisphere notwithstanding, demand conditions remain robust with Japanese, Indian and US data coming out strongly. The market may soon position itself for an upside break in the wake of positive macro data and unabated geopolitical uncertainties.
The technical picture suggests WTI may decline towards 94 where some buying interest may emerge. There is an encouraging uptick in Brent and a move above 114 looks possible.