Gold, silver likely to trade higher this fortnight; oil to remain weak

NON-AGRI COMMODITIES  

Global markets traded lower in the last fortnight as concerns over growth of the global economy alarmed investors across the globe as they dumped equities. Weak sentiments in the global market further exerted a downside pressure.

In case of the Indian rupee, the currency appreciated by around 0.6 per cent on account of a sharp decline in retail and wholesale inflation data. However, a sharp appreciation was capped on account of a widening trade deficit.

In the non-agri commodities space, spot gold prices traded positive last fortnight on a decline in global equities followed by disappointing economic data from the US, sparking economic fears and lifting gold's safe-haven appeal.  US equities traded lower after the US government said retail sales slipped in September and producer prices fell, worrisome signals on the economy's health that heightened financial market worries over faltering global growth.

Economic data from Europe has remained weak and a worse-than-expected inflation reading from China weighed on gold, an inflation hedge.  Gold took some support from physical markets. Gold imports in India, the world's second-biggest consumer of the metal, nearly doubled in September from August to $3.75 billion, ahead of the country's wedding and festival season. Gold was underpinned after James Bullard, president of the St. Louis Fed and a top US central banker, said the Fed should keep buying bonds for longer than planned in the face of volatile markets and falling inflation expectations, even as another Fed policymaker warned against over-reaction.

Spot silver prices traded higher in the last fortnight taking cues from strong gold prices. Lower growth projections of the world economy by the IMF and weakness in the dollar index acted as a positive factor for prices. Overall, spot silver prices gained by around 2.56 per cent and closed at $17.23/oz while MCX silver prices also gained by 1.35 per cent and closed at Rs 38,399/kg.

During the last fortnight, LME Copper prices fell by 0.2 per cent as weak economic data from China fuelled investor worries about demand from the world's largest copper consumer. In addition, mixed economic data from the US coupled with a faltering euro-zone economy, as indicated by a string of data, acted as negative factors. Further, a jump in LME stocks by 5.1 per cent exerted a downside pressure on prices. However, an influential Federal Reserve policymaker said he would be "delighted" to raise interest rates sometime next year since it would be a sign of economic success, but for now a "very accommodative monetary policy" is still needed, thereby restricting a sharp fall. MCX copper prices fell by 1 per cent in the last fifteen days owing to the rupee's appreciation.

Brent and WTI oil prices lost around seven to eight per cent in the last fortnight, extending a run of losses on concerns over weak oil demand as equity markets tumbled and economic gloom spread. Growth concerns in the global economy, slow demand from Asia, and inventory buildup in the US further added pressure. A downward revision in global oil demand for 2015 by the International Energy Agency further depressed the market. On the MCX, crude prices fell around 8.36 per cent and closed at Rs 5,095/bbl.

OUTLOOK

We expect gold and silver prices to trade higher this week as lower growth projection of the world economy, troubled euro-zone, and comments from James Bullard to extend the bond buying programme will act as positive factor for gold prices.

In case of crude oil we expect the weakness to continue in the coming fortnight as ample crude supplies, slow demand from China, lower growth in the global economy, and maintenance of refineries in the US will act as a negative factor for prices.

Base metals are likely to trade lower owing to estimates of weak manufacturing data from the US and euro zone along with demand concerns from top consumer as China's economy is likely to have grown at its weakest pace in more than five years in the third quarter.

AGRI COMMODITIES

Agri commodities witnessed high volatility over the last fortnight. Harvest pressure of kharif crop kept prices of most commodities under pressure. However, festive demand led support to the prices.

The monsoon season 2014 is in its withdrawal phase. According to data from the Indian Meteorological Department (IMD), the cumulative rainfall for the season (starting October 1) till October 17 was 31 per cent below normal at 38.1 mm compared to the normal of 55 mm. According to the Ministry of Agriculture, sowing of rabi crops till October 17 stands 16.2 per cent up at 11.41 lakh ha compared with 9.82 lakh ha last year.

NCDEX has revised expiry of turmeric and maize October futures to October 17 from October 20 on account of closure of physical market at the basis centre. Also, the exchange has modified the schedule for delivery in refined soy oil.

Most of the edible oil complex remained weak due to arrival pressure of soybean coupled with comfortable edible oil stocks due to higher imports. Mustard seed prices declined 0.7 per cent on higher mustard oil imports. Refined soy oil and CPO futures lost 1.7 per cent and 3.5 per cent, respectively, on ample supplies and weak overseas edible oil prices. Soybean too remained weak in the first half of the fortnight on arrival pressure. However, prices bounced back sharply from lower levels on short coverings in the domestic as well as overseas market and settled 4.2 per cent higher. CBOT soybean gained 4.33 per cent on delayed harvesting.

Among spices, jeera was this biggest gainer posting 2.5 per cent returns on strong exports data. Turmeric also recovered from lower levels on festive buying and crop concerns in Andhra Pradesh due to the cyclone and settled 1.8 per cent higher. Coriander corrected from higher levels on profit taking and lost 2.5 per cent. Expectations of better sowing this year also kept prices under check.

Among softs, sugar traded on a flat note. Prices gained in the initial part of the fortnight on festive demand and lower level buying. However, prices corrected from higher levels towards the end of the fortnight on profit taking and ample supplies in the physical markets and settled marginally lower 0.21 per cent. Cotton remained weak to bearish and declined 1.6 per cent on record output in India and global demand concerns after China's new policy announcement.  

Chana futures recovered from lower levels on short covering and festive buying and settled 1 per cent higher. However, ample stocks due to record output last year capped sharp gains.

OUTLOOK

In the coming fortnight, we expect agri commodities to remain mixed. Harvesting as well as arrival pressure of the new kharif crops may continue to keep prices under check. Also, sowing has commenced for most rabi crops, and hence some pressure may be seen in prices of rabi crops too. However, festive season demand may cushion the downside and support prices at lower levels. Rains during the withdrawal phase also remain poor, and may impact the sowing of rabi crops. Spices may find support on demand from the overseas markets. Cotton is expected to remain weak due to record output and weak global demand. Soybean may find support tracking positive overseas markets. However, arrival pressure may cap the upside. Prices may also take cues from movement in the overseas agri commodity prices as well as the Indian rupee.