Gold may hold strong in coming weeks due to weak dollar.
Ravindra Rao
The steep appreciation in the rupee on the back of steadily falling prices of crude oil has led to all non-agro commodities on the MCX bleeding.
For yet another week, MCX crude oil slid, following international crude oil price trends. West Texas Intermediate weakened by nearly 10 percent on rising fears of failure of OPEC and its allies in setting a floor to falling prices, with a mere 1.2m b/d cut in production.
Later, pressure increased as the Fed raised concerns regarding global growth prospects and investors began to question the need (and demand) for crude oil.
Natural gas dipped further on forecasts of warmer than normal weather in the US. Investors keenly eyed the Fed meet and future trajectory.
As anticipated, Fed did move interest rates but signalled a slower pace of rising rates in the next two years. The Fed chair also confirmed fears that the US economy is slowing and ratcheted back its plan to raise interest rates next year.
Base metals were no different from other segments. Investors pressed the sell button shortly after Fed announcement emerged.
Meanwhile, LME aluminium prices reacted negatively as the US administration announced it was ready to lift sanctions on Russian aluminium giant, Rusal, as its owner reduced stake in the firm. Copper may be flat to positive as International Copper Study Group’s (ICSG) latest report said the refined copper market was in deficit in September.
The coming week will be holiday-shortened as the US, UK and Germany will observe holidays from Monday to Wednesday. Hence, there will possibly be less participation.
Still, we believe the yellow metal may hold strong in the coming weeks due to a weak dollar. Besides, exchange-traded-funds have attracted significant investments these days, bringing this year's net purchases to 1.47m ounces, according to Bloomberg data.
This was the ninth straight day of growth. Hence the yellow metal is likely to be strong in the week to come.
Crude oil has fallen by nearly 43% from its recent pick-up on the MCX; so, a technical bounce back cannot be ruled out. Further from the first week of January, Saudi Arabia is likely to cut production, with crude oil, subsequently poised for a rebound.
Copper, as mentioned above, may be supported as the ICSG reported a deficit in September. China’s aluminium smelters will halt more than 800,000 tonnes of capacity after a slump in the prices of the metal wiped out margins, the China Nonferrous Industry Association said.
According to a Bloomberg forecast model, China has already idled over 3.2 m tonnes of capacity this year, mostly during the second half. Hence, aluminium also likely to continue positive next week. So overall, in a holiday-shortened week, we expect commodities to bounce back.
The author is Head - Commodity Research & Advisory, Anand Rathi Commodities.
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