G Chandrashekhar
Mumbai, Nov 28
Re-emergence of sovereign debt concerns in southern Europe, strengthening dollar, quantitative easing II, continued easy money policy in the US and tightening monetary policy in major emerging markets, China's fight to contain commodity inflation – the list of factors that affect commodity markets seems rather long.
For commodity producers, QE II has provided such a tonic boost that the recent negative developments such as sovereign debt issue have failed to dampen the sentiment. Investor interest remains largely intact. Globally, in the commodity market, assets under management have reached a record $340 billion.
The emerging markets, largely represented by Asia covering China and India, are currently driving global commodity demand. In particular, industrial metals and in energy products coal are set to enjoy rising demand.
In many cases, despite road bumps, fundamentals are seen improving. Crude and copper provide a promising picture. However, if the southern European sovereign debt crisis takes turn for the worse, all bets will be off. Gold will continue to be the safe-haven metal.
The dollar appears strong relative to the euro not because of the former's fundamental merit, but simply because the latter is under strain. How the euro/dollar relationship pans put over the coming months needs to be watched closely.
Gold: The metal continues to enjoy strong investor interest despite a firming dollar. In addition to liberal US monetary policy, return of sovereign debt uncertainty in Europe has helped the precious metal stay at elevated levels, although from time to corrections are seen. Week-on-week, the metal was up 0.9 per cent last week.
In London on Friday, the PM Fix for gold was at $1,355 an ounce, down 1.3 per cent from the previous days. Silver moved down sharply losing 3 percent from the previous day to Friday AM Fix at $26.62/oz. The precious metal is likely to trade range-bound in the coming days as it looks for direction from currency markets and geopolitical developments.
Experts are near-unanimous that gold should continue to rise in 2011. However, whether it would outperform other commodities will depend on currency factor as there are competing concerns on the dollar and Euro on the risks of investing in gold. At least in the short-run, the dollar is likely to retain the bulk of its recent strength although it can weaken against the euro from time to time. Long-term investor interest remains stable.
Base metals: The complex continues to be impacted by macroeconomic data, growth concerns and monetary policy in major economies. Average prices of most base metals are likely to be higher in the first quarter of 2011, with copper in particular showing robust upside potential.
Crude: Despite considerably constructive fundamentals, the market is still concerned about revival of European sovereign debt concerns. Flow of positive macro-data will boost prices. Clearly, crude is expected to stay above $80 a barrel unless the global growth or debt concerns take a turn for the worse. Major emerging markets are seen driving growth in consumption. Crude is likely to trade in $80-90 a barrel range for some time.
Source : http://www.thehindubusinessline.com
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