Mumbai: Despite heightened speculators’ interest, towards the end of last week, gold shed some of the gains it made in the previous days, following long liquidation and profit booking. The price correction occurred in the context of concerns relating to the US economy and equity market as also dollar movements.
On Friday, London PM Fix was $882 an ounce, down from $888.25/oz the previous day and down from $891/oz a week ago. Silver followed suit. On Friday, London AM Fix was $15.83/oz, down from previous day’s $15.88 and from previous Friday’s $16.06/oz.
The week also witnessed the largest ever outflow of funds (21.5 tonnes) from a gold exchanged traded fund (Street-Tracks). The GFMS gold survey continued to paint a positive picture for the outlook of the gold market.
Physical demand
There is belief that investment demand would drive the market up, despite physical demand showing clear signs of slowing. The report cautioned about the possibility of short- to medium-term price correction given the speed of the recent price rise and the speculative length. GFMS does view $1,000 as a clear possibility later this year.
While the medium-term outlook for gold looks positive on current reckoning, dollar is likely to be the key determining factor. Demand-supply fundamentals of the gold market are tight. Even small changes in demand or supply or both will have a disproportionately large impact on prices.
In India, very clearly, high prices have driven household buyers away. Scrap sales are expanding. Physical imports have begun to dwindle. In a market that displays volatility and rapid price rise, savvy speculators, and not actual users, benefit. Therefore, caution is needed in trading gold at these elevated levels.
Downside correction
With the market having recorded a phenomenal price increase in 2007 and prospects of further increases appearing positive, old resistance levels are now turning into support levels. Whether the downside correction has run its course remains to be seen. Technical analysts assert the yellow metal will resume its uptrend.
Base metals
After a positive start to the year, base metals have fallen back, with the short-term positive of buying due to index re-weighting now over. Poor US economic data, concerns over the outlook of Chinese growth and the not-so-encouraging OECD composite lead indicators are also weighing on the market at present.
• Check out our Yearender Special
However, low inventory levels (low by historical standards) provide a silver lining. Any brightening of economic growth prospects would result in a big increase in physical demand and some sharp price appreciation, an analyst asserted. In addition, forward prices continue to be strong.
This is interpreted as market participants’ perception of current weakness as temporary. From a fundamental perspective the copper market looks tight, while tin too is tightening with further price gains to come. Current strength in nickel prices may be tempered by weakness in the stainless steel sector, which is expected to recover not before the second quarter.
Aluminium market looks to remain range-bound because of adequate stocks, while zinc — whose inventory levels are rising (10.6 per cent last week) — may fall further. According to technical analysts, copper prices remain a matter of concern. Odds favour a further downside and the risk is for a choppy decline to 6750. Aluminium too will have a choppy range. In the short-term, the risk is for weakness to 2395/2400.
Oil
Pressurised by release of a new batch of poor economic data and equity market weakness, crude market is softening. Indeed, it is to the credit of the market that despite growing macroeconomic pessimism, oil prices are holding above the $90-a-barrel mark. This reflects severe underlying tightness in the market.
From here on, prices may consolidate in the high 80s to low 90s levels, provided concerns over the economy continue and stocks expand seasonally. Weather over the next several weeks will play an important part in shaping the market sentiment.
Agriculture
In recent times, grains have performed extremely well in the entire commodity complex. Latest USDA data that showed global supply and demand balances in corn and wheat helped push prices higher. Whether there would be further price gains and if so in which crops would depend on how acreages in the US during the upcoming planting season unfold for wheat, corn, soyabean and cotton.
It is, however, clear that investors are increasingly attracted to grains markets by impressive price performance and the relative immunity of return to uncertain economic outlook that is hampering performance of other commodity markets such as energy and base metals.
According to experts, the share of speculative activity in grains markets is traditionally higher than in energy or base metals. However, there is little evidence that it is moving higher with prices. Price gains are primarily the result of widening gap between demand and supply; but speculation takes to a higher level.
On Friday, London PM Fix was $882 an ounce, down from $888.25/oz the previous day and down from $891/oz a week ago. Silver followed suit. On Friday, London AM Fix was $15.83/oz, down from previous day’s $15.88 and from previous Friday’s $16.06/oz.
The week also witnessed the largest ever outflow of funds (21.5 tonnes) from a gold exchanged traded fund (Street-Tracks). The GFMS gold survey continued to paint a positive picture for the outlook of the gold market.
Physical demand
There is belief that investment demand would drive the market up, despite physical demand showing clear signs of slowing. The report cautioned about the possibility of short- to medium-term price correction given the speed of the recent price rise and the speculative length. GFMS does view $1,000 as a clear possibility later this year.
While the medium-term outlook for gold looks positive on current reckoning, dollar is likely to be the key determining factor. Demand-supply fundamentals of the gold market are tight. Even small changes in demand or supply or both will have a disproportionately large impact on prices.
In India, very clearly, high prices have driven household buyers away. Scrap sales are expanding. Physical imports have begun to dwindle. In a market that displays volatility and rapid price rise, savvy speculators, and not actual users, benefit. Therefore, caution is needed in trading gold at these elevated levels.
Downside correction
With the market having recorded a phenomenal price increase in 2007 and prospects of further increases appearing positive, old resistance levels are now turning into support levels. Whether the downside correction has run its course remains to be seen. Technical analysts assert the yellow metal will resume its uptrend.
Base metals
After a positive start to the year, base metals have fallen back, with the short-term positive of buying due to index re-weighting now over. Poor US economic data, concerns over the outlook of Chinese growth and the not-so-encouraging OECD composite lead indicators are also weighing on the market at present.
• Check out our Yearender Special
However, low inventory levels (low by historical standards) provide a silver lining. Any brightening of economic growth prospects would result in a big increase in physical demand and some sharp price appreciation, an analyst asserted. In addition, forward prices continue to be strong.
This is interpreted as market participants’ perception of current weakness as temporary. From a fundamental perspective the copper market looks tight, while tin too is tightening with further price gains to come. Current strength in nickel prices may be tempered by weakness in the stainless steel sector, which is expected to recover not before the second quarter.
Aluminium market looks to remain range-bound because of adequate stocks, while zinc — whose inventory levels are rising (10.6 per cent last week) — may fall further. According to technical analysts, copper prices remain a matter of concern. Odds favour a further downside and the risk is for a choppy decline to 6750. Aluminium too will have a choppy range. In the short-term, the risk is for weakness to 2395/2400.
Oil
Pressurised by release of a new batch of poor economic data and equity market weakness, crude market is softening. Indeed, it is to the credit of the market that despite growing macroeconomic pessimism, oil prices are holding above the $90-a-barrel mark. This reflects severe underlying tightness in the market.
From here on, prices may consolidate in the high 80s to low 90s levels, provided concerns over the economy continue and stocks expand seasonally. Weather over the next several weeks will play an important part in shaping the market sentiment.
Agriculture
In recent times, grains have performed extremely well in the entire commodity complex. Latest USDA data that showed global supply and demand balances in corn and wheat helped push prices higher. Whether there would be further price gains and if so in which crops would depend on how acreages in the US during the upcoming planting season unfold for wheat, corn, soyabean and cotton.
It is, however, clear that investors are increasingly attracted to grains markets by impressive price performance and the relative immunity of return to uncertain economic outlook that is hampering performance of other commodity markets such as energy and base metals.
According to experts, the share of speculative activity in grains markets is traditionally higher than in energy or base metals. However, there is little evidence that it is moving higher with prices. Price gains are primarily the result of widening gap between demand and supply; but speculation takes to a higher level.
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