Metals & Energy - 12.10.2012
Precious Metals
Precious metals traded tentatively this week, as better employment numbers on US front kept a lid on the prices. September jobs report showed the U.S unemployment rate dipping to 7.8%. The decline in unemployment rate implies that Federal Reserve will likely shorten its easing window, if the labour markets show further signs of progress. In addition, U.S jobless claims fell to 4 year low during last week. Gold prices retreated from 2012 highs, as US$1,790‐1,800 range has proved to be a strong resistance of late and breach of the same can only lead to resumption of upswing in prices. Post monetary policy measures from Europe and US; speculation is rife regarding monetary injection by China. Looking forward, we infer that some kind of monetary stimulus from china is in the offing, considering the economic slowdown the nation is witnessing. In such an event, the gold bugs would get the requisite tailwind, wherein the prices would easily breach the near‐term upside congestion of US$1,800 levels. On domestic front, gold prices remain underpinned by the onset of festive season in India and relatively weak tone in Indian rupee.
Base Metals
Base metals have scaled back gains this week, impacted by looming Spanish debt concerns and poor macroeconomic forecasts across various geographies. International Monetary Fund has lowered its forecasts for global economic growth to 3.3% this year (the slowest since 2009) and 3.6% in 2013. In addition, World Bank expects China’s growth to come in at 7.7% in 2012 (down from 8.2%) and 8.1% in 2013. In Europe, German industrial orders were down 1.3% in August compared with the previous month. On demand front, Chinese auto sales of passenger cars in China fell 0.30% in September from a year earlier to 1.32mn units. In China, the country’s central bank is considering another round of reverse bond repurchase injections, however it has failed to provide any major support to the markets. Poor flow of macroeconomic numbers categorically from China & Europe, coupled with dull economic growth forecasts is discouraging the metal bulls from venturing in to aggressive positions. Considering the prevalent lacklustre tone, market participants await for further direction from the slew of Chinese macroeconomic numbers scheduled next week, including metals trade figures and Q3 GDP data.
Energy
Oil futures traded higher this week, underpinned by looming violence between Turkey and Syria. Turkish army retaliated with firing for the sixth day after a shell from Syria flew over the border. In addition, Turkey has sent more tanks and missile defense systems to the Syrian border. Lingering geopolitical tensions emanating from the Middle East has led to a round of short‐covering in the energy complex. Effectively, WTI oil prices have managed to find support around US$90/bbl. Interestingly, Natural gas has top performed the commodity complex this week, as markets have gauged that the onset of winter in North America would spruce up the utility demand for this alternative energy. Weather forecasts indicate a severe winter this year in the northern hemisphere, which also provides a considerable amount of support to Natural gas prices. Of late, declining trend in U.S distillate stocks and increasing heating oil crack spreads also denote signs of pick‐up in energy demand for the ensuing winter. On the broader term perspective, Natural gas seems to be a good bet, as therein remains a decent probability of prices rallying higher from the prevalent level of US$3.5/mmBtu to above US$4/mmBtu.
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