What a week it was!! Global commodity markets went through turbulent times last week with broad-based price declines not seen for a long time.
Events combined to shake investor confidence resulting in a huge sell-off in risky assets.
Metals, particularly gold and silver, led the aggressive sell-off.
Clearly, hawkish Fed minutes (indicating scale-back of quantitative easing during the year), news that Cyprus may sell some gold to meet its bailout costs and China’s somewhat weak and lower than expected Q1 GDP numbers all played a role in exerting pressure on a range of commodities including metals and energy. Retreat in commodity prices is seen as part of the recent consolidation in risk appetite.
The speed of correction no doubt took most participants by surprise; but the correction itself should be seen as healthy, as too much easy money was chasing commodities.
The metals complex ended the week on a bad note.
Gold was of course the big story, with prices dropping by as much as 8.5 per cent over the week while silver collapsed by 13.6 per cent. Platinum lost 5.9 per cent and palladium 5.4 per cent.
Oil WTI was down 3.2 per cent to trade at $88 a barrel. Week-on-week, copper was down 5.6 per cent to trade below $7,000 a tonne; tin down 5.7 per cent and nickel down 4.3 per cent to a tad below $15,100/t.
Aluminium was an exception up 2.3 per cent over the week to close at $1,860/t on the LME on Friday and zinc too was in the positive territory marginally.
Going forward, it will become increasingly critical to exercise caution in the matter of commodity investment, particularly for longer time horizons.
Global growth signals, the US Fed monetary policy, China’s growth data, European sovereign debt resolution, currency dynamics and geopolitical developments all will continue to exercise influence in varying degrees.
Gold: Between Friday of the previous week and Monday of last week, gold suffered its worst performance in 30 years, experts pointed out adding the price collapsed below $1,400 an ounce.
Friday last in London price rebounded a little to a PM Fix of $1,406/oz from $1,394/oz the previous day.
For silver, Friday AM Fix was at $23.66/oz versus the previous day’s $23.51/oz. Platinum was at $1,425/oz and palladium $677/oz.
Mass exiting of longer and shorter-term investors placed immense pressure on prices of the yellow metal. ETP outflows have been so large that even stronger demand from China and India could not offset the decline.
This columnist has consistently maintained the imminent collapse in gold prices sooner rather than later. So, the price decline should not come as a surprise; but what was unexpected was the speed of liquidation.
Physical demand has stayed somewhat enervated. The sentiment was damaged further by Fed statements about liquidity tightening during the year. Buyers now wait for further fall in prices. While gold jewellery demand will pick up, it remains to be seen at what price.
Interestingly, silver, an industrial metal, is in clear surplus. Yet, prices have actually held up. According to technical analysis, upticks in gold provide better levels to sell against the 1,470 area.
Ultimately, one can look for a move below 1,320 toward 1,275-1,300 area. The yellow metal will face resistance at 1,455 and then at 1,425 while support is seen at 1,340 and then 1,320.
Base metals: The market turbulence inflicted injuries on the complex with sharp price declines. On the LME, copper ended the week at $6,961/t, aluminium at $1,860/t and nickel at $15,099/t.
In copper, rapid inventory build-up has shaken the confidence of investors even as demand is seen stable.
As for aluminium, it is fundamentally a long-term underperformer; but cyclically looks better than its peers, according to analysts.
Technically speaking, momentum for copper is bearish. Resistance is seen at 7,330 and then at 7,110 while support is seen at 6,800 and then 6,665.
One can look for a move below 6,800 to confirm further downside extension toward the range low near 6,635.