Gold shines amid global commodity sell off
BL reported that in a week of worsening macroeconomic uncertainty going hand in hand with no signs of a decisive policy action in Europe, global commodity market participants are perhaps beginning to imagine a repeat of the spectre of collapse that enveloped the world almost exactly this time of the year in 2008.
Commodity markets especially energy and base metals faced the brunt of worsening sentiment, loss of confidence and fears of demand compression amid slowing growth in major Asian economies and turmoil in Europe. While Brent crude fell below USD 100 per barrel, base metals continued to face headwinds and agricultural prices fell over the past week due to risk aversion and firm dollar.
ICE sugar fell to a fresh 21-month low on Thursday. Week-on-week, oil was down and so were most base metals. A major gainer was of course gold whose safe haven status was suddenly rediscovered on Friday when the US payroll data fell below expectation. After languishing for months, the yellow metal received a major shot in the arm with prices spiking to well above USD 1,600 an ounce. Where would the markets go from here? It is a tricky situation.
The month of June will witness a series of important events each one of which can potentially impact commodity markets. Meetings of US and European policymakers, FOMC meeting, G-20 summit, elections in Greece, OPEC meeting and more are listed. Each one of these events brings with it some risk directionally to commodity market prices.
As the outcomes of these scheduled meetings are uncertain and price risks are difficult to quantify in either direction, experts recommend setting sector weights to neutral this month. However, looking at from a fundamental perspective, oil has the highest potential for a price rise because of the highly supportive fundamentals.
Despite slowing growth in Chinese and Indian oil demand, the US demand is improving supported further by OECD Pacific demand. Gold too is most likely to regain investor interest in the midst of uncertainty.
Disappointing US payroll data on Friday and weaker dollar reignited interest in the yellow metal which saw investors flocking to it. In London, the PM Fix was USD 1,606 per oz up from the previous day's USD 1,558 per oz. Later, prices went past USD 1,620 per oz in New York. Silver bucked the trend with Friday AM Fix in London at USD 27.38 per oz down from USD 28.10 per oz the previous day.
As if on cue there is a chorus about the possibility of further quantitative easing. Many gold bulls who have been betting on such easing have been utterly disappointed in recent times as the need for easing has somewhat receded; but surely not ruled out. The big question once again is whether there will be QE3 soon, the expectation of which has boosted gold. This writer believes the time is not ripe yet for QE3 to happen.
Although macroeconomic data are far from inspiring, but they have to turn even worse before decisive action is implemented. Because almost all assets are perceived to be turning risky, gold seems to be the least risky asset currently.
The complex has faced sell off with sentiment souring amid global growth concerns and slowdown in Europe and China. For base metals market to regain confidence, sustained flow of positive macroeconomic data is necessary.
As yet it is unclear how the picture will pan out in the coming months. There is expectation that in the second half, the global growth momentum will improve and China will show signs of reversing the slowdown. In the event, metals such as copper will benefit. So, price dips in Q2 may be viewed as buying opportunity to position for H2 strength. On Friday LME cash copper was USD 7,373 per tonne and aluminium USD 1,935 per tonne.
Technical picture suggest a close below the 1,990 area in aluminium would confirm a bearish view toward 1,955 and then 1,825. Copper is seen moving toward the next target area near 7,100 ahead of important support in the 6,925 area.
Source - The Hindu Businessline.com