At a time when macro data flow from around the global is still mixed and countries/central bankers are attempting to bolster growth prospects through stimulus packages – enhancing liquidity, lowering interest rates, competitive currency devaluation – the downside risks to global growth have not waned.
Large-scale asset purchase by the US Fed and Bank of Japan is a case in point. Experts hope that robust financial conditions will overcome fiscal headwinds.
Global commodity markets seem to have taken cognisance of the evolving positive sentiment. Prices posted broad-based but somewhat restrained gains on the back of better-than-expected US employment report and German factory orders and industrial production.
Brent crude prices firmed and remained above $104 a barrel during the week with higher intraday volatility. In base metals, the price performance was mixed, with the rally confined to copper (1.5 per cent) and tin (1.7 per cent) over the week. Market participants saw scope for increased physical tightness in the near-term copper market with drawdown in Shanghai stocks.
On the other hand, significant strengthening of the dollar saw both gold and silver drop sharply on Friday. Over the week, in London, all precious metals, except palladium, were down with gold losing 2.9 per cent, silver 3.6 per cent and platinum 0.7 per cent in value. Palladium gained 1.2 per cent over the week.
Clearly, the markets are in a wait-and-watch mode looking for price triggers. Despite supportive macro data, Brent prices are likely to stay under pressure because of muted physical market demand for prompt cargoes of light grade crude.
A move towards the $110 a barrel level is not currently on the horizon. Among base metals, it may be said that copper has further upside with market positioning still short and positive demand signals from China.
Precious metals
With liquidity boost and so much of uncertainty still around, prices are seen stabilising. Indeed they slowly edged higher even as the physical market has responded positively to the lower gold price environment. At the same time, outflows from ETPs have continued unabated.
April saw a record 182 tonnes outflow, and total holdings are the lowest since October 2011. Obviously, ETP outflows remain the key downside risk to gold prices in the near-term.
On Friday, in London, all precious metals were down. Gold PM Fix was $1,427 an ounce down from the previous day’s $1,466/oz. Silver followed suit with Friday AM Fix at $23.37/oz versus previous day’s $24.07/oz. Platinum closed at $1,490/oz and palladium $702/oz.
Physical demand in India is currently satisfactory because of seasonal factors. The hype about ‘akshaya trithiya’ is overdone to attract buyers; but consumers have generally turned wary.
Demand will turn subdued after a couple of weeks when crop planting operations commence in rural India and stay subdued until September.
Indian policymakers are determined to contain gold imports.
Platinum week starts on Monday. The price view on platinum and palladium are positive and both markets are expected to return to deficit this year.
Experts assert that platinum offers the most upside potential in the near-term given growing auto demand.
Platinum market is facing a 2,50,000-3,00,000 ounces deficit while palladium market deficit is estimated at 6,00,000-7,00,000 ounces.
According to technical analysis, gold’s momentum is bearish. The metal faces resistance at $1,520 and $1,490 while support is seen at $1,400 and $1,350.
A test below $1,440 would encourage a bearish view. An extension through $1,400 would confirm lower toward $1,320.
With a relatively subdued end to the week, copper was seen consolidating it is gains to close at $7,386/t, while aluminium closed at $1,843/t on LME on Friday.
Base metals
Preliminary Chinese trade data for April were soft. Copper still has some upside left with positive demand signals from China. The market is still short and there could be short-covering rallies. Prices can potentially rise above $7,500/t and move towards $7,800/t. In case of nickel, pressure from lower LME prices has led to some mine closure. From a technical perspective, copper faces resistance at $7,650 and $7,480 while support is seen at $7,250 and $7,040.
Crude
Weakness in the crude markets is likely to persist in the short-term as demand-supply fundamentals are balanced and geopolitical threats have receded. However, with continued economic activity and growth momentum, global oil demand is expected to surpass the 90 million barrels a day for the first time in history.
Non-OECD demand (represented largely by emerging Asia) is expected to surpass OECD demand.
Technically, crude is looking bearish and the target is near 100.