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Week-trospect - Metals & Energy

India Infoline Research Team / 11:43 , Nov 19, 2012

Precious Metals
Gold prices witnessed lacklustre trade activity in the absence of specific leads to propel the market either way. On a relative scale, prices managed to recover from the lows riding on the back of growing political uncertainties which brought back the commodity’s safe haven appeal. Earlier in the week, Gold prices battled hard to thwart the key resistance of US$1,740, but in vain, as the participants tuned into the risk-off approach as suggested by the better Chinese economic data. Interestingly, gold’s own fundamentals also proved to be sluggish as a report from WGC showed that Q3 global demand fell 11% on yoy as China’s appetite for gold as an investment avenue and jewellery declined. In tonnage terms, global demand stood at 1,084 tons, down from a record of 1,224 tons witnessed a year earlier. Technically, prices have found intermediate support around US$1,705 and a test of US$1,735-1,740 cannot be ruled out. However, no significant trend-shift is expected till the time clarity emerges from the US fiscal front

Base Metals
Copper held its neck above the key support levels in the wake of positive overtures from the US and China. Indications that Chinese economy could be bottoming out, while US could end up with a solution to the much sought after ‘fiscal cliff’ enthused trade participants. At US, President Mr Barack Obama’s statement that Republicans would have to agree to raise taxes on the wealthy as the first step in a budget deal that would prevent a dysfunctional Washington from pushing the economy into recession helped the prices to heave a sigh of relief. Similarly, announcement by Chinese Premier that its economy is turning the corner and is likely to meet its growth target for the year, pushed the forward gear. Industrial output, exports and retail sales have all beaten the expectations in October which stands supportive for the upside fortunes of the non-ferrous metals. Other base metals remained rather subdued for the week. On the currency front, uncertainty persists over the situation in Greece and the development of a bailout for the nation that could encourage a shift from risky assets towards the US dollar. In this case, the upside fortunes in base and precious metals could be at stake for the time being.

Energy
Crude oil prices embarked on a steady recovery path last week as Middle East tensions grew larger and invited speculative buying. Concern that the hostilities between Israel and Hamas will escalate could affect Middle East crude oil shipments also prompted short covering and fresh buying in crude. On Friday, Israeli ministers were on Friday asked to endorse the call-up of up to 75,000 reservists after Palestinian militants nearly hit Jerusalem with a rocket for the first time in decades and fired at Tel Aviv for a second day. The ability of crude oil prices to surpass the key barrier of US$86.8 after prolonged consolidation indicates a positive turnaround for the short term.

Recommended Strategy:


CMP Trading range Strategy Levels Target Stop-loss
MCX Gold Dec’12 31,680 31,000-32,100 Buy 31,400 32,000 31,000
MCX Silver Dec’12 61,150 58,000-62,500 Buy 60,800 61,500 60,300
MCX Crude Oil Dec’12 4,860 4,600-5,000 Buy 4,750 4,950 4,620
MCX Copper Nov’12 422.5 410-425 - - - -

MCX Gold Dec’12
During the last few weeks, gold has been trading in downward sloping channel. However this week, upside breakout is an encouraging sign for the bulls. Effectively, we expect prices to close above the near term resistance level of Rs31,800/10gms, with a strong likelihood of prices hitting Rs32,100/10gms in the coming days. Turnaround could be possible if prices breach below Rs31,300/10gms, which can pave way towards Rs30,800/10gms.

MCX Silver Dec’12
Silver prices are confined in a two trend line, as depicted in the chart. Strength in gold prices could have a spillover effect on silver, which can augment the buying sentiment in silver as well. Considering this, we expect silver prices to move towards Rs61,600/kg. Silver will generate more strength on breakout above Rs62,500/kg.

MCX Crude Oil Dec’12
As mentioned last week, MCX crude oil prices continue to trade within the range of Rs4,600-4,800/bbl. We reiterate with the same price range for the next few days. Sustenance above Rs4,800/bbl daily closing basis could take the prices towards Rs5,000/bbl. On the downside, a breach of the Rs4,570/bbl could invite short term weakness, with the probability of prices hitting one year low of Rs4,400/bbl not being ruled out.

MCX Copper Nov’12
On the MCX, copper prices are expected to trade within the range of Rs410-426/kg for the next week. Copper is bouncing from the same level of Rs410/kg since August. Rs410/kg is working as a strong support, which has not been breached for more than 3 months, and hence a gradual recovery could be underway.