Week-trospect - Metals & Energy: February 27, 2015

India Infoline Research Team | Mumbai | February 27, 2015 14:14 IST

On outlook, the yellow metal has lost the upside impetus as the concerns over Greece crisis and Ukraine-Russia has mitigated to an extent.

Precious Metals
Gold prices dipped below the psychological level of US$1,200/oz as European officials and the Greek government agreed on a four-month exten­sion of the country’s current bailout program. Greece government submitted the reform proposals to the European authorities and set out its broad plans to implement its program, offering assurances that it will beef up tax collection, fight corruption and not roll back any ongoing or completed privatizations.  Effectively, the can has been kicked down the road, wherein the risk of ‘Grexit’ has been mitigated for the time being. This also can be manifested by the moderation in Greece sovereign bond yields. However, the yellow metal has now regained lost ground after US Federal Reserve chairperson Janet Yellen’s testimony to the Congress. Although the testimony indicated that Fed will soon drop the word “patient” from its forward guidance, it lacked any hawkish statements. This conveys that the central bank is in no hurry to hike interest rates. Meanwhile, an element of market participants are pricing in the probability of a rate hike during the second half of this year. On outlook, the yellow metal has lost the upside impetus as the concerns over Greece crisis and Ukraine-Russia has mitigated to an extent. In addition, stability in global equity markets will dissuade the gold bugs from venturing in to aggressive positions. We expect gold prices to scale lower below the crucial support of US$1,180/oz during the course of next two weeks.
 
Base Metals
Initially, the base metals pack was deprived of any impetus as Chinese markets were closed till Wednesday on account of Chinese New Year holidays. However, markets remained hopeful of further monetary stimulus from the Chinese government. On macroeconomic side, HSBC reported its preliminary reading for China’s manufacturing PMI for February at 50.1, modest improvement from 49.7 in January. Meanwhile, the head of the Chinese central bank's research bureau stated that the economic growth in the country this year could slow to between 6.9%-7.1% this year. Fixed asset investment growth is projected to cool further and deflation and rising non-performing loan ratios at commercial banks were cited as additional risks. On fundamental side, ILZSG reported that global refined zinc market was in a 296,000-ton deficit in 2014 and global refined lead market was in a 5,000 tons deficit. On outlook, Copper prices can categorically derive support from drought conditions in Chile that is hampering production. Both Anglo American and BHP Billiton have reported that dry conditions have hit output hard. However, the supply loss will not be large enough and Chilean production this year is still expected to grow this year by some 200,000 tons, when compared with the last year.
 
Energy
WTI oil prices have pared earlier gains as negotiations between US and Iran on nuclear deal are progressing, with both the sides striving hard to reach an agreement before the March 31st deadline. Reports suggest that an outline of an agreement could restrict Tehran's nuclear activities for at least 10 years before easing limitations on the program. Iran may also be forced to ship out most of the enriched uranium to prevent its conversion for weapons use.
 
Recommended Strategy
 
   CMP Trading range Strategy Levels Target Stop-loss
MCX Gold Apr’15 26,170 25,650-26,550 Sell 26,250 25,800 26,550
MCX Silver Mar’15 36,500 35,650-37,650 Sell 36,900 35,700 37,650
MCX Copper Apr’15 370 357-390 Buy 366 382 357
MCX Crude oil Mar’15 3,050 2,860-3,333 Sell 3,100 2,900 3,220

 

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