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BW Businessworld

Gold, Silver Down In Volatile Market

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With global economy tracking the possible outcome of European Union (EU) Summit and growth prospects in US and China, prices of the entire non-agri commodities in the fortnight witnessed a very volatile session. Overall global markets closed on a positive note owing to positive outcome by the EU Summit.   
Gold prices declined around 2 per cent in the last fortnight owing to mixed global market sentiments. Weakness in Dollar index (DX) cushioned sharp decline in the prices. The DX weakened around 0.1 per cent in the last fortnight. In the Indian markets appreciation in the Indian Rupee also acted as a negative factor for the gold prices.

Fall in gold prices and base metal complex along with mixed global market sentiments led Silver prices to decline around 4.2 per cent. However, weakness in DX restricted prices from falling sharply. The base metals pack traded on a negative note apart from Copper in the last fortnight on account of rise in LME inventories. However, weakness in the DX coupled with upbeat global market sentiments cushioned further fall in base metals complex.

Copper the leader of the base metals gained by more than 3.5 per cent and closed at $7,738/tonne on Friday. However, rise in LME Copper inventories of around 3 percent restricted further upside in red metal prices. On the domestic front, appreciation in the Indian Rupee added downside pressure on the prices.

In the last fortnight, Nymex Crude oil prices gained by 0.5 per cent on account of ease in European debt crisis coupled with weakness in the DX.

Additionally European Union (EU) oil embargo on imports of Iranian crude oil along with upbeat global market sentiment helped upside in the prices. In the Indian markets prices declined around 1 percent and closed at Rs.4,662/bbl on Friday.

Precious metals, base metals and crude oil prices are expected to trade on a positive note on back of favorable outcome of the EU Summit and thereby upbeat global market sentiments. Further, possible optimistic steps by the Federal Reserve of US and government of China to boost the economic growth and consumer confidence will also act as a supportive factor for the uptrend in the international commodities.

In the Indian markets sharp gains are likely to be restrained owing to further appreciation in the Indian Rupee (INR) ahead of measures taken by the RBI to boost up investment climate in India.

Agri Commodities
With the arrival of southwest monsoon in India, prices of agri commodities, particularly Kharif crops, have started responding to the monsoon advancement and its distribution. Although it is very early to predict the impact of below normal rains so far on the sowing progress and productivity of the Kharif crops, the prices of most commodities have started rising. However, the extent of the gains varied from commodity to commodity depending upon the inherent fundamentals of the individual commodity. Besides monsoon, domestic prices also took cues from the international markets, mainly US, wherein weather is unfavorable for the growth of Soybean, Cotton, Corn and Wheat.   

Oilseeds complex remained in green during the last fortnight with Soybean leading the gainers list backed by not only domestic fundamentals, but also the international markets that soared amid dry weather conditions in US. Delayed rains and thereby lower area under soybean so far, may continue to support soybean prices in the coming weeks. Ref soy oil and CPO also gained 6.9% and 7.6% on account of higher demand amid Muslim festival ahead coupled with weaker domestic currency that is making imports expensive.

Despite delayed monsoons and likely drop in area, the gains in Kapas were limited due to weak international markets that remained under pressure expecting higher global end stocks. Despite a 28% hike in MSP of medium staple cotton, area may remain lower as farmers may shift to other lucrative crops supporting the upside in the prices.

Sugar prices gained around 1.5% amid below normal rains that may hamper yield of cane crop which is in the growth phase. Further, with festive demand ahead and government keeping quarterly quota unchanged at 45 lakh tonnes for July-September; we expect sugar prices to remain firm in the coming weeks.

Among Spices, Turmeric posted highest gains of around 4.5% on expectations of lower acreage and below normal rains so far, While Jeera settled 2.4% higher anticipating fresh export enquiries amidst lower supplies from Syria and Turkey. With respect to pepper, gains were comparatively lower on expectations of fresh arrivals to commence from Indonesia and Malaysia. Spices board of India has released export data of FY 2011-12 wherein exports of pepper, Turmeric and Jeera were up by 42%, 40% and 61% respectively.

Chana, prices gained more than 9% on account of lower supplies along with lower area under Kharif Pulses cultivation. Further, with an improvement in demand at lower levels, prices may continue to remain firm in the coming fortnight.

The agri commodities, particularly, soybean, Cotton, Sugar and Turmeric may continue to remain firm on account of below normal rains so far in the monsoon season which may hamper sowing or growth of these crops. However, sentiments might turn, otherwise, and prices may come under downside pressure if monsoon recovers in the month of July. Thus, monsoon advancement and the progress has to be watched closely in the coming days to get a clearer picture of the crop prospects for the coming season of 2012-13.  Further, it is necessary to keep track of the international markets with respect to soybean and cotton as these commodities are highly correlated with the international markets.

(The author is Associate Director, Commodities and Currencies, Angel Commodities)