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Copper received its first weekly gain on recovery trends in US economy while Shanghai copper rose ater markets returned after a week long Lunar New Year holiday. Gold continued to grind higher with traders still looki..

08 Feb 2014

LONDON (Commodity Online):Commodities witnessed a strong beginning in February with the agri-commodities and metals providing optimism while gold stock markets stabilised after a weak beginning, according to Ole S Hansen, Head of Commodity Strategy at Saxo Bank.

Copper received its first weekly gain on recovery trends in US economy while Shanghai copper rose ater markets returned after a week long Lunar New Year holiday. London Metal Exchange ware houses witnessed shrinking of inventory - with copper falling to 308,000 tons, the lowest in 13 months and less than half of he June 2013 peak of 678,000 tons.

CBOT wheat received a boost from the cold temperatures currently sweeping through the key production areas of the US. This is similar to the support that has been witnessed in the energy sector where demand for natural gas and distillates has been running well above normal levels this past month.

Both Arabica coffee and sugar received a strong boost from the very dry weather conditions currently sweeping through the southern regions of Brazil. Sugar reached 16.38 cents/lb before retracing on profit taking after posting the longest rally in four months on the back of worries that crop yields in Brazil could be reduced as a result of the current heatwave.

Brent crude has spent most of the past five weeks within a two dollar range while WTI crude oil has moved higher buoyed by strong domestic demand related to the coldest winter in many years and the recently improved pipeline infrastructure within the US which has begun to reduce stockpiles at Cushing, Oklahoma, the delivery hub for WTI crude traded on NYMEX. As a result much of the activity has been related to the arbitrage between the two benchmarks and as a result of the better WTI crude performance, the spread has stayed below USD 10/barrel for the past week.

"Recently we have seen weaker-than-expected PMI data from China and this combined with the recent turmoil in many of the emerging economies could see demand growth being negatively impacted over the coming months. This would further help to limit the upside potentials for both crude oils over the coming weeks and months considering an expected strong rise in non-OPEC production in 2014. Domestic US demand will also be negatively impacted by the refinery-turnaround season during which time refinery demand normally reached the lowest level of the year."

Gold continued to grind higher with traders still looking for a driver or an event that eventually could take the price out of the established range between 1,231-1,280 USD/oz. Traders have been presented with several good excuses to take the market higher over the past few weeks as emerging market turmoil, weakness in DM stocks, lower bond yields and a somewhat weaker dollar all supposedly should be supportive for gold but have not proved to be so. Recent data covering the speculative positioning by hedge funds still points towards short covering as one of the main driver behind the current strength, but until a sustained break emerges, many traders will still be viewing higher prices as good entry levels for selling the market. A close above USD 1,272 could prompt a change in sentiment and help drive the price higher towards the next key area of resistance at USD 1,308 while a similar move back below USD 1,230 will put the focus back on the downside,Ole S Hansen added.

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