Commodities witnessed broad-based declines in the past week with gold (-1.51%), silver (-8.20%), crude (-4.35%) and copper (-2.60%) closing in the red (COMEX figures on weekly basis). The two main market drivers once again decided the direction during the week as dollar strength combined with a fall in equities has sent commodities reeling. Dow Jones was down more that 2.50% and ICE Dollar index recovered by almost 1.10%, one of the best gains in recent weeks.

Risk appetite has turned into risk aversion due to stall in equities and a rebound in dollar. On the macro front, the US data has offered a mixed picture with consumer confidence slipped 10.7% from September raising some doubts in the markets on the sustainability of the recovery. The Conference Board consumer confidence index dropped to 47.7 in October from 53.4. The US GDP growth, however, surprised to the upside as the US economy grew 3.5% in Q3. Housing data was mixed with existing home sales coming in positive while new home sale numbers were disappointing. IMF Chief Strauss-Kahn stated that US GDP figures are an encouraging sign but warned that the recovery would be hampered if unemployment continues to rise.

Gold prices witnessed some correction after hitting an all-time high of $1070 per ounce on COMEX division of New York Mercantile Exchange. The fall was mainly due to a rebound in dollar and also due to technical selling as the recent rally was overdone. On MCX, the prices were flat due to rupee depreciation against dollar. Physical demand for the yellow metal remained weak. According to Bombay Bullion Association Ltd, gold imports to India probably declined for the 6th consecutive month due to high prices. The association has also stated that gold imports in India are expected to decline to 50 tonne in the fourth quarter of the year compared with a quarterly average of 110 tonne. Investment demand slipped past week with holdings in SPDR gold trust, the world’s largest exchange-traded fund backed by bullion, fell by almost 0.49% to 1103.52 tonne on weekly basis. For the week, we expect gold to trade at a range of $1034-1054, as traders will keep a close watch on all important US ISM Index and employment data. Technically, key support is pegged at $1024 sustained break on closing basis can take the prices to as low as $984 on COMEX division of New York Mercantile Exchange.

Crude oil started the week on the defensive, recovered with positive US GDP data, but again fell sharply on Friday as prices above $80 is not justifiable, looking at the record high inventories and energy demand, which remains at low level despite economic recovery. The prices were further pressurised as Opec members are not comfortable with oil prices returning to $100 a barrel and that the cartel would boost oil production at the next Opec meeting in December. Chinese data lent some support to prices as the Chinese Customs data showed that crude oil imports rose by 15% y-o-y to 17.2 tonne although crude oil imports in September declined for the second month.

In spite of a macro economic recovery, demand-supply fundamentals in oil remained weak with record high inventory levels, slippage in Opec?s compliance (62% in September, compared to 66% in August and over 80% in the first quarter as per IEA estimates) will cap crude oil rally. For the week, we expect crude will trade in the range of $79-74.50.Sustained break of 74.50 will take the prices down till $72 levels. Upside resistance is seen at $79.70, break of which will take prices again to $82 levels.

Copper was another commodity which started the week on a defensive, recovered and then fell again as the recent rally seemed to be overdone. Supply disruptions, due to strikes in Chile and Peru, supported copper prices on the higher side. A data from China official customs was also supportive to prices where imports of refined copper rose 28.7% in the month to 282,828 tonne, after declining for two straight months following a record high of 378,943 tonne in June.

We will be closing watching upcoming Chinese trade data to get a further view on how copper prices will behave in the near future. It will be a week full of data in the US with ISM, non-farm payrolls and the FOMC meeting. We expect market will trade in a narrow range until the above data is released.

(The author is head of commodities, Motilal Oswal Financial Services Ltd)