2:24 pm - Thursday November 5, 2015

Gold, silver likely to trade lower; copper may rise

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Global markets traded mixed in the last fortnight as the US Fed’s decision to wind up its bond buying programme acted as a boost for equities wherein the Dow Jones gained by around two per cent. Equities in the euro zone and Japan traded lower due to weak sentiment, acting as a negative factor.
The Indian rupee appreciated by around 0.6 per cent on account of inflow of foreign funds in debt markets and hopes for more announcements of reforms by the government.
In the non-agricultural commodities space, spot gold prices traded negative last fortnight as rallying equity markets and strong US economic data dented demand for the precious metal as an insurance against risk. Sales of new US single-family homes rose to a six-year high in September, but a sharp downward revision to August’s sales pace indicated the housing recovery remains tentative. Gold’s loss was also triggered by a stronger dollar. The dollar was up by more than one per cent in the previous fortnight on strong third-quarter US economic growth and worries the Federal Reserve might raise interest rates sooner than expected. Follow-through selling continued in the gold market a day after the US central bank gave upbeat comments about US economic growth and ended its year-long, bond-buying stimulus programme. In a reflection of investor sentiment, the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings fell 1.2 tonnes to 742.40 tonnes, a six-year low.
Spot silver prices in the international markets declined and traded at the lowest level in more than four-and-a-half years. Decline in the yellow metal also acted as a negative factor. Strength in the dollar index on account of good economic data exerted downside pressure. Overall, spot silver prices declined by around 2.5 per cent while MCX silver prices fell more than four per cent.
During the last fortnight, LME Copper prices jumped by 1.6 per cent largely as supply disruption concerns came to the fore after Indonesia’s Grasberg copper mine, one of the world’s biggest, is running at around two-thirds capacity because of a 30-day strike starting November 6. Further, workers at Peru’s biggest copper mine, Antamina, plan to start an indefinite strike from Nov. 10. In addition, global miner Southern Copper has revised down its forecast for its copper output next year by 9.8 per cent. However, the Federal Reserve ended QE3 despite global turmoil, thereby strengthening the dollar index and leading to a fall in metal prices. Also, gain in the LME stock by more than three per cent restricted sharp gains. MCX copper prices fell by 1.1 per cent in the last 15 days.

WTI oil prices lost around two per cent in the past fortnight, extending a rout of losses in recent weeks. Oil markets are battered by news that Iraq increased its oil supply in October, while Libya’s output remains high, despite instability in both countries. There are no signs that OPEC members will cut oil production to rescue prices when they meet in Vienna on Nov. 27. OPEC secretary general Abdullah al-Badri said the group would stick to its production target of 30 million barrels per day (bpd). Among global economies, only the United States is on the mend. Data showed the US economy grew 3.5 per cent in the third quarter, topping market estimates for a three per cent rise. On the MCX, crude prices lost around 1.5 per cent
Outlook
We expect gold and silver prices to trade lower in the coming fortnight as growth in the US GDP has raised optimism in the economy as a whole and the expectations of rise in interest rates sooner or later will act as a negative factor for prices. Investment sentiment also remains low as seen in the decline in holdings in the SPDR Gold Trust, exerting downside pressure.
Crude markets are bothered by ample supplies from the OPEC as well as from the US. Low demand from the euro zone and China will act as a negative factor for prices.
Base metals are likely to trade mixed as investors will remain cautious ahead of manufacturing data from China. Also, strength in the dollar index will keep a control on prices. Copper prices in particular are likely to trade higher on speculation that planned strikes at mines in Indonesia and Peru may disrupt supplies.

Agricultural Commodities

Recent rains in various parts of India due to cyclone Hudhud on the east coast has damaged various kharif crops which were ready for harvest. This may also lead to delay in sowing of rabi commodities. These factors, along with festive season buying led most agricultural commodities to witness a bounce back in prices over the last fortnight.
According to data from the India Meteorological Department (IMD), the cumulative rainfall for the season till October 29 was 59.4 mm, 24 per cent below the normal of 77.8 mm. According to the Ministry of Agriculture, sowing of rabi crops till October 24 stands 5.59 per cent up at 30.24 lakh ha compared with 32.03 lakh ha last year.
On the regulatory front, the regulator has revised minimum initial margin of guar gum and guar seed. The regulator also imposed additional margins on castor seed. NCDEX has modified specifications of Barley, Chana, Mustard seed and Chilli.
The CCEA also declared the minimum support prices of rabi crops for the 2014/15 season. The increase has been marginal in almost all commodities.
The edible oil complex bounced back sharply from lower levels last fortnight. Soybean gained 7.1 per cent on crop damage concerns due to rains in the soy belt and higher overseas markets while mustard seed gained 2.4 per cent tracking higher soybean and demand for mustard oil. CPO and refined soy oil gained 4.1 per cent and 3.9 per cent, respectively on festive demand and positive global edible oil prices.
In the spices complex, jeera was the biggest gainer with 2.7 per cent returns on good export demand. Turmeric traded on a positive note and gained 2.8 per cent on crop damage due to cyclone Hudhud and festive buying. Coriander declined 0.8 per cent on profit taking and declining demand at higher levels. Expectations of better sowing this year also kept under check.
Among softs, sugar traded on a flat note with a positive bias and gained 0.6 per cent. Festive demand and lower level buying lent support to prices at lower levels. However, huge carryover stocks, ample supplies and bearish sentiment in the global markets capped the gains and kept prices under check. Cotton lost 0.4 per cent over the last fortnight. Prices remained weak on expectations of bumper output in India. Global demand concerns also kept prices under check. Lower level buying and short covering, however, supported prices at lower levels.
Chana futures traded on a bullish note over the last fortnight on improved demand and festive buying and settled 7.7 per cent higher.
Outlook
In the coming fortnight, we expect agricultural commodities to remain mixed to positive. Crop damage concerns due to the cyclone and delayed sowing of rabi crops may support prices. Delayed harvesting may also lend support to the prices. However, overall expectations of a higher output and increased sowing may cap the upside. Also, supply and arrival pressure as the movement of arrivals will pick up pace in the days to come will also keep some downside pressure on the prices.

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