Monday, February 02, 2009
Commodity Trends: Gold Futures steal the show
Monday, 02 February 2009
The highlight of the week was the zooming gold prices which touched Rs 14,448 for 10 gms at India’s Multi-Commodity Exchange. Oil futures rose on Friday after OPEC signaled it may deepen its record output cuts, countering a U.S. report showing energy demand shrinking more quickly than previously thought. In view of the anticipated fall in domestic sugar production, government has approved policy changes for raw sugar imports made under the Advanced License (AL) scheme. Government officials said that the change would involve switching to a tonne-to-tonne import policy comapred to the prevailing grain-to-grain policy. With the decks cleared for sugar import, the prices have eased in the Futures and physical counters.
Rise in the prices of manufactured goods pulled up the inflation rate marginally to 5.64 for the week ended January 17, against 5.60 in the preceding week. For manufactured products, the inflation rate increased to 6.2 per cent during the week against 5.9 per cent in the previous week.
The government last night slashed prices of petrol by Rs 5 a litre, diesel by Rs 2 per litre and cooking gas (LPG) by Rs 25 per cylinder. This price reduction has raised fears of deflation with economists expecting an overall decline in the prices early next fiscal.
Precious Metals
Gold prices rose for second successive week, as increased safe haven demand amidst global economic slowdown has supported rise in yellow metal prices. Spot gold touched a low of $873 and bounced back sharply above $900 per ounce. Gold & Silver prices continue to trade higher even though the Euro & crude trade lower. The gold prices have traditionally been positively correlated to both, the Euro & Crude, but now it does not appear to be the case. It is majorly the concerns of global economy and tanking stock markets, which is leading investors to invest in gold, the safe-haven asset. Also, Gold investment - particularly through purchases of physical gold in the shape of bullion - has been on the rise in recent months, with the price of yellow metal soaring by 17 percent since October 08.
Further, with expectations that the USD (greenback) could slump even lower, has prompted central banks to even switch from dollar holdings to gold, thus supporting gold prices. Longer-term, the stimulus plans by the United States and printing of money are likely to lead to devaluation of the dollar which will lift gold prices. Also, buying interest has increased tremendously from wealthy investors/funds so as to diversify their portfolios. The strong demand is being mirrored among professional investors whose funds are buying gold and shares of the companies that produce it. That has helped the metal to its eighth straight annual gain last year and has driven a rally in gold stocks in recent months. Gold is a “the obvious counterweight” to currencies. Spot Gold can face resistance around $935/955 levels, whereas crucial support is seen at $875.
Crude Oil
Crude oil prices were down in the last week. Prices rose and touched a weekly high of $48.50 per barrel, but could not hold on to their gains, as strong dollar and more than expected rise in crude oil inventory weighed on oil prices. Demand for oil in U.S. during the four weeks ended Jan. 16 averaged 19Mbbl a day, down 4.7 percent from a year earlier. Crude inventories at Cushing, Okla., the delivery point for crude futures traded on the New York Mercantile Exchange, rose to 33.5 million barrels. Inventory at Cushing has increased more than 20% in past four weeks and it is approaching operable storage capacity of about 34Mbbl, putting downward pressure on near month oil prices.
Economic data from US is not showing any signs of improvement. With economic situation is worsening day by day across all developed nations, we believe that demand for oil will remain subdued, putting pressure on oil pieces. Inventory of crude oil and oil products is expected to remain high in coming days. Inventory at Cushing, NYMEX delivery center, is at record high, which can limit additional storage capacity for oil companies. This is likely to put pressure on near month futures prices. Only factor which is supporting oil prices at this point of time is the expectation, that OPEC will abide by its production cuts and may cut further supply to support oil prices. Crude Oil prices are expected to trade in the range of $35 and $50 in the short term.
Source: Commodity Online
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