Commodity Online
Even as Central banks are taking all possible measures to restore investor confidence, policy makers in USA now foresee another problem—deflation in 2009. This could send prices further falling. India's Inflation fell to 11.44 per cent for the week ended on October 4 due to decline in oil prices and manufactured goods. Inflation could be falling for the wrong reasons. A lack of demand is leading to inventory liquidation.

Commodity users at the end of the value chain are buying less because they are selling less. Meanwhile, analysts said 250 basis points reduction in cash reserve ration (CRR) of banks could become inflationary. However, Pavan Kumar Bansal, Minister of State for Finance said that CRR cut will not increase inflation but it could infuse liquidity and sustain growth.

Gold
Gold declined to a one-month low on speculation that investors will sell the precious metal to cover losses in other markets. Silver fell to the lowest since February 2006. Investor’s confidence is still very low and with equities markets witnessing a free fall in past week, long positions in gold is being liquidated to meet margin-calls. Crude prices have also collapsed from their all time highs and trading at 50% discount, which has also exerted pressure on gold prices. With global equities & financial markets still in pain, those holding long positions in gold have been squaring off their positions over the past few days. Also, the dollar is still showing signs of strength on the back of weakness in Euro.

Declining crude prices are also expected to weigh on gold prices in coming weeks. On the physical side, volatile gold prices appears to have blunted the buying appetite in India, the world's largest consumer, ahead of Diwali, the Hindu festival of lights, at the end of October. But at the same time, as prices correct further, we can expect good demand from the physical side. We expect gold prices to remain range bound in coming week, and expect international gold price to face resistance at $860 per ounce.

Crude Oil
Crude Oil prices have witnessed heavy sell off during this week on account of falling demand and fear of recession in US, Europe and Japan. Wednesday’s inventory data showed more than expected rise in crude oil stocks and build up in gasoline stocks, which put pressure on oil prices. Large build in the gasoline and crude oil stocks for third consecutive week vindicated that demand is really weakening in U.S. Rising gasoline production and imports lead to sharp rise in gasoline stocks. US crude oil products demand is now down by 8.9% from the year ago level to 18.6Mbbl.

Factors like sharp rise in oil stocks, rising dollar and no active hurricanes in the Gulf of Mexico, are putting pressure on oil prices. With prices falling sharply, OPEC has decided to take quick action and will hold its meeting in the next week. As per market expectation, group is likely to cut oil production to stem the downside. In the light of the weaker product outlook as well as comfortable situation in OECD crude stocks, the oil market could be considerably affected by the fallout from the recent financial turmoil. We expect oil prices to remain bearish in the near term with a resistance at $85 per barrel.

Rubber
The market was weak for spot rubber as it declined to Rs 81/kg for RSS4 in the beginning of the week. However the prices bounced back to Rs 86/kg on short covering and slid back to Rs 84. By weekend the prices have firmed to Rs 85/kg. The global rubber prices reflecting the Futures rates at Tokyo Commodity Exchange (TOCOM) was extremely bearish. However, what prevented the market from further fall was the strengthening of the north-east monsoon and and absence of sellers at lower levels. Despite selling pressure, the absence of enquiries from consuming industries led to bearish sentiments in the market. The declining trends in oil prices triggered by global recession and falling international commodity markets contributed the steep fall from Rs 142 a kg to Rs 81 early this week. With this trend continuing, rubber prices are likely to trade steady to weak in the near term.

Base metals
The base metals pack declined in the last week, as poor macroeconomic data coupled with concerns over demand put pressure on metals. A sell-off was witnessed across the commodities space and even precious metal faced the pressure.

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