Gold, crude oil prices to trade lower in coming fortnight

Fortnightly Performance
 
Non-agri Commodities

Global markets traded on a positive note in the last fortnight on the back of the statement from the US Federal Reserve in terms of keeping interest rates for considerable amount of time. Further, Scotland voted for no independent country from the UK, along with China declaring additional stimulus of 500 billion Yuan continued with an upside in the markets. However, sharp upside in the markets was capped due to slow industrial production in the Chinese economy.

On the domestic front, markets traded higher as a result of optimistic retail and wholesale inflation data from the country. Further, inflow of foreign funds in equities and debt markets totalling $33.15 billion in the current year acted as a positive factor. The rupee depreciated around 0.55 per cent in the same period owing to trade deficit data widening for the month of August. Further, slow industrial production from the country coupled with strength in the DX continued with downside movement in the currency.  

In the non-agri commodities space, spot gold prices traded lower in the last fortnight on the strength in the dollar index coupled with easing of geopolitical tensions. Precious metal hovered around eight-and-a-half-month low as investors worried that the Fed Reserve may start hinting at plans to raise US interest rates sooner than expected. As per market expectations, the Fed Reserve signalled that a faster hike in US interest rates might be on the horizon. Further gains in gold were limited after the Labor Department said earlier US consumer prices fell for the first time in nearly one-and-a-half years in August and underlying inflation pressures were muted. Bullion prices were pressured further after data showed US jobless claims fell more than expected, suggesting a firming labour market, a trend seen as supportive of economic growth.

Spot silver prices also traded lower in line with weakness in gold prices and declined by around three per cent. Weakness in the base metals pack coupled with declining speculative interest in the metal dragged prices. On the MCX, silver prices fell by one per cent in the last fortnight.

During the last fortnight, LME Copper prices traded lower by around two per cent owing to demand concerns amid signs that housing markets are faltering in China and the US, the two biggest users. In addition, China's factories stumbled to the weakest in nearly six years, fuelling concerns over its metals demand. Also, dollar strength after the Fed Reserve raised interest rate estimates to 1.375 per cent, compared with 1.125 per cent in June for end 2015 added to downside. However, liquidity easing measures by China by way of repo rate cut and addition of 500 billion yuan to five biggest banks restricted sharp fall. MCX copper prices fell by two per cent in the last 15 days.
 
Crude oil prices traded lower in the last fortnight owing to slowing global economic growth, particularly in China, and Europe had curbed oil demand severely at a time when supplies were growing steadily, particularly from North America. The OPEC also lowered projected demand for its crude and data showed US refined product stocks jumped. With fast-rising US output and the return of exports from Libya creating a market that looks increasingly over-supplied. On the other hand, violence in the Middle East has failed to materialise, and production resumed at Britain's North Sea Buzzard oilfield after a series of shutdowns and failed restarts.  Overall, WTI oil prices gained marginally by around one per cent and MCX crude oil traded flat with marginal change in prices

Outlook

In the coming fortnight we expect gold prices to trade lower. Gold prices looks vulnerable to a further fall as the US dollar index climbed to its strongest level in more than four years and as US equities trading at fresh record highs. Besides, the ease of geopolitical tensions, growth in the US economy, spate of good economic indicators from the US are all pointing towards correction in precious metal prices.

Crude oil prices will trade lower on ample supplies in the US and OPEC. On the contrary, growth in the US economy is gaining traction acting as a positive factor for prices.

Base metals are likely to trade lower as strong DX following comments by Fed Reserve along with concerns of demand from China will act as a negative factor. However, liquidity easing measures by China will restrict sharp losses.

Agri Commodities

After trading on a bearish note over the last few weeks, some agri commodities witnessed short coverings at lower levels last fortnight. However, most agri commodities continued to remain weak.

As per the data from the Indian Meteorological Department (IMD), the cumulative rainfall for the season till September 18 was 12 per cent below normal at 731.1 mm compared to a normal of 829.2 mm. According to First Advance Estimates released by the Ministry of Agriculture on September 19, kharif food grains is estimated at 120.27 million tonnes compared to 129.24 million tonnes, down 8.97 million tonnes.

Water levels in the 85 major reservoirs are below last year's levels but higher than 10 years average. As per the latest data available from the Central Water Commission, the levels in the reservoirs were reported at 119.785 billion cubic metres as against a full capacity of 155.046 billion cubic metres.   

The edible oilseed complex bounced back over the last fortnight on short coverings and lower level buying. Soy oil and CPO gained 5.7 per cent and 4.9 per cent, respectively, tailing a similar trend in the overseas markets coupled with stockists buying ahead of the peak festive season in India. Mustard seed also gained 1.1 per cent on mustard meal export demand. However, weak soybeans capped sharp gains. Soybean prices remained weak tracking bearish overseas market sentiments as well as good crop conditions and favourable climatic conditions and settled 1.4 per cent lower. However, short coverings were seen earlier this week. Weakness in the rupee also lent support to the prices.

Among spices, turmeric retained the tag of the biggest loser with 9.8 per cent losses on sluggish physical demand, huge carryover stocks and increased sowing in Telangana. Jeera declined three per cent on huge carryover stocks and weak than expected overseas demand. Coriander declined 2.5 per cent on weak demand and weak exports.

Among softs, sugar prices continued to remain weak losing 6.1 per cent on abundant supplies and lack of demand. Selling pressure from the mills and bearish overseas markets also pressurised prices. Cotton traded on a mixed to negative note. Prices recovered from lower levels on short coverings. However, prices were unable to sustain at higher levels and resumed its southward journey on weak global market sentiments after China's new policy announcement. Higher sowing and expectations of a bumper output also pressurised prices and settled 1.7 per cent lower. Sentiments in the global cotton markets continue to remain bearish on demand concern from China.  

Chana futures found support at lower levels on value buying and festive demand. However, comfortable supplies on the back of record output capped sharp gains and settled 1.5 per cent higher.

Outlook

We expect most of the agri commodities to largely remain weak as the harvest season is around the corner. Good rains, reducing sowing deficit and favourable climatic conditions are also expected to pressurise prices. Good rains have set ground for sowing of the rabi crops. Spillover from bearishness in the global agri commodities markets may also be seen. However, festive demand is expected to emerge at lower levels and lend support to the falling prices. Prices are also likely to take cues from movement in the overseas agri commodity prices as well as the rupee.

The IMD expects the withdrawal of monsoon over the next couple of days which will be favourable for the ready to be harvested crops like cotton and paddy. Extended rains may lead to crop damage. Also, delayed or unseasonal rains may damage the standing crop.