Commodity prices have most often been impacted by the value of the dollar.
The greenback’s strength over the last two years has surely placed a lid on upward price movement in most commodities, although admittedly the firming of the dollar has stalled against some currencies in recent months. No wonder, commodities continue to face headwinds in the global marketplace.
Forex experts foresee a broad resurgence in the dollar, gathering pace towards the last quarter of the year. In the event, commodity markets could come under further pressure from currency markets.
Base metals and precious metals are the most vulnerable to dollar strength.
Last week the focus of market attention was China. The country’s economic growth has remained steady but modest. Chinese trade data last week provided a huge boost to the otherwise tepid market sentiment.
Last week, prices of all precious metals, except gold that remained unchanged, moved up.
Over the week, silver gained 4.4 per cent, platinum 3.9 per cent and palladium 1.2 per cent. All LME base metals perked up between 2.5 and 4.9 per cent.
While aluminium was up 3.5 per cent, copper was better with a rise of 3.8 per cent. Shanghai copper stocks dropped 12,400 tonnes (7.6 per cent) over the week, continuing the drawdown trend. LME cash nickel, tin and zinc prices moved up by 4.9, 4.4 and 4.3 per cent respectively. However, oil WTI was down 1.3 per cent.
Gold: weak demand
Prices have continued hover around the $1,300 an ounce mark.
The precious metal continues to take cue from macro data and FOMC guidance. Its relationship with the dollar and the equity market remains positive.
The concern is physical demand which stays weak. Demand in India is almost absent as importers are reluctant to arrange for imports in the absence of clarity on documentation, monitoring and implementation, commented an expert.
Also, seasonal factors are at play. Physical demand will not pick up until after September because of farming season.
ETP outflows are reported to be down 22 tonnes so far this month, taking year to date outflows to 667 tonnes.
Continued ETP outflows suggest a softer outlook for gold prices over the coming weeks.
On Friday, London gold PM Fix was $1,309/oz, slightly up from the previous day’s $1,298.
Silver firmed to Friday AM Fix of $20.31 versus previous day’s $19.73.
The recent pick-up in silver prices looks unsupported because the world silver market is fundamentally in surplus and investor appetite is weak.
Platinum closed at $1,492 from the previous day’s $1,465, widening its premium over gold to over $180. Palladium remained unchanged at $739.
Metals: bullish
Last week’s broad rally in base metals was triggered by positive growth data from China.
On Friday, LME cash copper closed at $7,253/tonne and aluminium $1,826.
Experts foresee potential for a more differentiated price performance of base metals in H2 this year.
Tin and lead’s recent outperformance is expected to continue.
At the same time, copper may underperform as they point out that the recent rally in copper prices may be an opportunity to sell short.
Given that the momentum of copper production growth will continue to gather pace during this quarter, prices could move down in Q4 this year.
Technically, copper momentum is bullish with resistance seen at 7,335 and 7,225 while support is seen at 7,135 and then at 7,060.
In base metals, the focus generally looks higher in the short term.