By Deepak Rangan
Driven by concerns of worsening Eurozone outlook, both precious metals and base metals fell at the Multi Commodity Exchange of India (MCX) for the week Feb 13- Feb 17 2012. Crude oil and natural gas ended positive with nat gas being the top gainer with over 8% gain.
The Eurozone was the critical factor in the commodities market for the week with countries and financial institutions in the region being downgraded by major credit rating agencies. Moody's downgraded 6 Euro countries including Spain and Italy while S&P downgraded close to 34 financial firms in Italy. Eurostat data showed that the region had contracted by 0.3% in Q4, 2011 with 5 countries falling into recession. Euro leaders are expected to meet on Feb 20 to decide on approving a 130 billion Euro rescue deal for Greece.
In the US, the Philly fed manufacturing index for February came out positive and unemployment claims also fell last week but retail sales for January declined.
In Japan, Q4 2011 GDP unexpectedly fell with data showing that the economy contracted by 2.3%.
Precious Metals
-Both Gold and Silver fell on the back of weak fundamental data, especially contracting growth in Eurozone and the unexpected decline in Japan's GDP. And since both metals continue to react bearish to negative news, one should not expect an uptrend on the release of such economic news.
Base Metals
-Base metals too were thrashed by negative indications from the Eurozone and Japan, continuing its downtrend from last week when high Chinese inflation data had caused a decline in base metal prices.
-Copper is also facing the prospect of slow Chinese demand with reports suggesting a big inventory buildup in the country and with the arbitrage window between the LME and the SHFE now closed, domestic demand may be met by these inventories, thus ruling out the possibility of imports. Premiums for the physical metal are also down, indicating waning demand from China.
Energies
-Under normal circumstances, crude oil prices should have declined due to negative news from Europe and Japan. But these are not normal circumstances. Iran continue to cause supply fears amongst investors who ended up supporting prices. Initial reports had suggested that Iran was going to stop all oil exports to the EU, which later turned out to be false. However, the possibility of such an action is rising each day. With the US increasingly stepping up sanctions on Iran, some argue that it is only a matter of time before Iran snaps.
-Natural gas prices strengthened on the back of technical buying, with many analysts opining that even factoring weak fundamentals, prices seem to be too low.
