Commodity Online
With more commodity exchanges to begin functioning after the launch of the fourth exchange, Indian Commodity Exchange (ICEX) recently, comexes are turning innovative. To begin with, these exchanges are focusing on aligning the futures market with the physical market. For example, ICEX plans to introduce delivery option in copper contracts and has already launched gold futures with five delivery centers against the older exchanges’ one or two such centres. This will force existing comexes to come out with innovative products.
The National Multi-Commodity Exchange (NMCE), one of the leading commodity exchanges in India, is inching closer to the launch of its agri-commodity spot exchange in Gujarat. The comex has recently received the state government’s nod to start the operations of the planned spot exchange called National APMC.
Global stocks closed higher Friday following reported fall in unemployment levels in USA. India could return to a higher growth trajectory of 8-9 % in two years, but it needs to invest more in infrastructure for sustaining such growth, World Bank president Robert Zoellick said.
Bullion
Gold prices have gained more than 2% during the last week as a weaker dollar coupled with the metal’s appeal as a hedge against inflation remains the focus. Fed chairman Ben Bernanke said yesterday that the Fed's forceful actions have prevented a devastating crisis from turning into something possibly even worse. He also pledged to maintain price stability and said that fiscal deficits eventually have to come down. It is worrisome that rising U.S. debt and deficits may continue to undermine the dollar and eventually cause inflation. Worries over inflation could lead to higher demand for gold as a hedge against inflationary pressures. Also, lower interest rates in the US continue to put pressure on the dollar which is trading on the weak side. From the long-term perspective, we expect interest rates to rise in the US in the coming year and that could lead to selling pressure in the yellow metal, making it look expensive for holders of other currencies. But until interest rates remain low the rally in gold prices could continue, taking advantage of the weaker dollar. MCX Gold February Contract shall find a strong support at 17600/17200 and resistance at 18500/18800 levels in the coming week.
Base Metals
The fundamental picture remains bleak as inventories on the LME reached a new all-time high of above 6.1 million tonnes. But the rally in base metals could continue as the dollar remains weak. We expect interest rates in the US to rise sooner rather than later and that could probably bring in correction in metals in the coming year. Factors that could help to provide an upside to base metals in the short-term: (1) Expansion in manufacturing activity in the US in November for a fourth straight month, (2) China’s manufacturing expanded at the fastest pace since April 2004.
The purchasing managers index rose a seasonally adjusted 55.7 from 55.4, (3) China’s GDP is expected to expand 10.5% this quarter and (4) Weakness in the dollar could make base metals look attractive for holders of other currencies. Copper prices could trade with a positive bias in the short-term as expansion in manufacturing activity could provide an upside. But the metal may find it difficult to sustain above $7500 levels as inventories continue to rise. Currently, a weak dollar is also providing upside support. But in the coming year, the US Federal Reserve could raise rates and that could lead to a change in the trend of the dollar. Hence, we feel that the short-term trend in copper remains up but prices could come under pressure if the dollar strengthens. MCX Copper February Contract shall find a strong support at 320/312 and resistance at 338/344 levels in the coming week.
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Energy
Crude oil is poised for a weekly decline as fundamentals indicate a bearish trend. The latest inventory data for crude oil this week has come on the bearish side. Crude oil prices could trade with a negative bias as demand concerns continue to dominate. Supplies also remain high and we do not expect a sharp recovery in oil prices in the near-term. Natural gas prices could witness further downside pressure as the demand scenario remains bleak. Since the winter in the US is expected to be mild, natural gas prices could face pressure. Fuel inventories in the US remain high and are sufficient to meet weakening demand. Oil prices could trade with a negative bias as rising inventory scenario is bearish.
The demand scenario in the US still remains bleak and this poor fundamental could add downside pressure to prices. But a sharp fall could be prevented on the back of a perennially weak dollar. Another factor that added to the downside in prices was a report from the US that showed service industries contracted in November. This raised concern that fuel demand may recover at a slow pace. MCX Crude December Contract shall find a strong support at 3410/3330 and resistance at 3650/3730 levels in the coming week.
