The market is likely to continue to stay at elevated levels because of investor demand and inflation fears.
Divergent behaviour marked global commodity trade last week. While crude continued to stay range-bound despite demand expanding robustly, gold prices set yet another milestone briefly touching the psychological $1,300 an ounce, fuelled by strong investor interest and concerns over macroeconomic situation.
Base metals moved higher even as agricultural commodities (wheat, corn, cotton) stayed at elevated levels albeit pulling back a little from earlier highs. Cotton, in particular, breached the record $1 a pound level given supply woes and robust demand. Closure of Chinese market for three days last week saw a small correction.
Macroeconomic pessimism seems to be easing a bit with stronger-than-expected US data and European growth as well as growing feeling that policy-induced slowdown in China may be bottoming out. Market fundamentals in many cases are likely to reassert themselves, although in the case of agriculture, weather continues to play a crucial role.
A major concern for the agri markets is threat of dryness in Brazil, which can potentially affect global vegetable oil prices.
Gold: Gold briefly touched $1,300/oz during Friday's trading. Although it continues to push to record highs, gains have not been particularly strong, experts said adding the rise was largely due to dollar weakness rather than demand for bullion. Silver continued to outperform gold through the week with the gold/silver ratio now a touch below 61.
On Friday, in the London market, gold PM Fix was at 1,297/oz, up from the previous day's 1,290.75/oz. Silver followed suit with Friday AM Fix at $21.35/oz versus $ 21.08/oz the previous day.
Safe haven buying remains buoyant. However, despite being peak demand season, physical demand in price-sensitive markets such as India has stayed in the sidelines because of record prices.
Gold prices go from being driven by short-term panic of a major global credit default to medium-term fears on the pace of and strength of global recovery and inflation. The market is likely to continue to stay at elevated levels because of investor demand and inflation fears.
However, speculative net length is at record levels in the bourses. This creates conditions for a strong correction in the event less-committed longs decide to liquidate. Nature of upcoming economic data and performance of equities market need to be watched.
According to technical analysts, the gold market will continue to probe 1,300. It will be the level that is likely to prove to be pivot and natural area for the market to book profit. In the medium-term, the larger bull trend targets 1,350 later this year.
As for silver, the close above 21.35 clears the way for the September 1980 high of at 24.25.
Base metals: Amid a strong week of rising prices, aluminium performed well being up by over 10 per cent. Copper too is now inching closer to $8,000 a tonne as copper stocks on the exchange fell 3.7 per cent week-on-week.
Chinese economic data continue to inspire confidence. Strengthening of the currency may prove positive for imports. For aluminium, signs of OECD demand revival and emerging market consumption provide robust support.
Crude: Prices seem to be consolidating around the mid-70s because of the lasting effects of macroeconomic pessimism. A break above $80 a barrel still remains elusive, although the fundamentals are supportive. The big question of course is when will confidence return to the market.
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