The year 2008 assumed historical proportions when commodities like crude oil and select base metals touched new all-time highs and also broke multi- year historical lows in the same year. The year would rightly be called as The Year Of The Financial Tsunami in global economy; clearing all that came in its way for instance, the bankruptcy of Lehman Brothers, one of the oldest banks. Following this, were the bailout packages offered in the US and other countries.

Looking ahead, the current monetary expansion and the escalating fiscal burden should trigger a surge in global inflation with a weaker US dollar, boosting commodity prices. The entire energy pack is likely to lead a rally of the entire commodity sector. The global economic slowdown continues to worsen the demand outlook for industrial metals in 2009. Gold prices should remain firm in 2009 reflecting safe-haven risk premium and hence support strong investment demand. A look at the performance of commodities in 2008 and prospects for 2009 are as follows:

Precious metals

Gold is one commodity which performed exceptionally well during 2008 as compared to other commodities. Gold prices started the year on a positive note and reached an all-time high of $1032.80/oz in March. As the dollar weakened against its counterparts, rising oil prices and heavy investment flows supported yellow metal to post an all-time high in the international market.

Since then, gold has tumbled by more than 33% to mark a low of $681/oz in October, as recovery of the greenback, fall in physical demand and collapse in oil prices eased demand the for gold. Falling oil prices lead to a fall in inflation, due to which demand for gold also subsided. Gold managed to bounce back from its yearly low after the financial market was badly affected by the credit crisis, leading to liquidity a crunch in the global financial system. Safe-haven buying from investors lent support to bullion prices. Also, demand for gold increased ahead of the festive season in India. In 2008, India imported more than 800 tonne of gold against an import of 754 tonne in 2007.

?Gold prices should remain firm in 2009, reflecting safe-haven risk premium and hence supporting strong investment demand,? a leading analyst with Commtrendz Risk Management Services Pvt Ltd said.

Silver prices also moved in tandem with gold, but being an industrial metal, it came under pressure from falling base metal prices. A pickup in physical demand and additional safe-haven buying will support prices, but the need to liquidate positions to meet margin calls elsewhere will cap gold’s upside potential.

?In the coming year, gold will continue to remain bullish, being a favorite commodity of investors and prices can hold on to their support of $650/oz on the lower side and on the higher side prices can cross an all-time high of $1030/oz,? Navin Mathur, head, Commodities, Angel Commodities Broking, said.

Gold in the domestic markets will range between Rs 11,450/10 gm to Rs 15,200/10 gm. ?Overall, the trend for silver remains bullish and will trade in the range between Rs 13,100/ kg to Rs 25,000/kg. Internationally, silver prices will trade in the range of $8/oz to $17.50/oz,? he said.

Base metals

Base metals like other commodities were also on a rollercoaster ride in 2008. Strong growth shown by China, a major consumer of base metals, led to sharp rise in metals like copper, lead, nickel and zinc till mid-2008. Prices started climbing as restocking by metal traders, rise in industrial activity supported metal prices.

Copper, the leader of base metal pack, touched an all-time high of $8930 in first week of July as rise in construction activity supported red metal. Nickel prices started the year on a positive note, but could not hold on to its gain. Fall in steel demand put pressure on nickel prices. Nickel is now trading at a multi-year low. Zinc traded on a weak note as rising inventory and heavy surplus from the beginning of the year weighed on metal prices. Lead succumbed to the pressure of the global financial turmoil, as fall in demand for batteries put breaks on demand. Lead prices have fallen by more than 75% from its high levels. Since aluminum an energy intensive metal, the fall in oil prices put downward pressure on prices.

?The global economic slowdown continues to worsen the demand outlook for industrial metals in 2009,? an industry expert said. A combination of de-stocking and companies adjusting for a deteriorating economic outlook, has lead to a freefall in base metal prices. But the rate of fall now seems to be slowing with a number of metals turning sideways or even trying to edge higher. China, along with other industrialised countries, have announced stimulus packages to bolster their economies.

?We expect copper prices to remain bearish in the first half of 2009 to trade in the range of Rs 120/ kg to Rs 200/kg in domestic markets and $2,500/tonne to $4,400/tonne at LME. In the latter half of the year, prices may tend to get support from the economic packages announced by various governments and we expect it to trade in the range of Rs 150/kg to Rs 250/kg in Indian markets and $3,000/tonne to $5,000/tonne at the LME,? Mathur said.

Zinc prices are likely to trade in the range of $950/tonne to $2,500/tonne at the LME and Rs 45/kg to Rs 120/kg. Nickel prices would be tied to the fate of the steel industry and the price may trade in the range of $8,500/tonne to $20,000/tonne at LME and Rs 400/kg to Rs. 960/kg in domestic markets.

Crude oil

Crude oil prices started 2008 with a bang, as prices crossed $100 per barrel for the first time in February. High economic growth over the last 4 years led to rise in demand for energy. Demand from China, the world’s second largest oil consumer, almost doubled. The rally in oil prices accelerated after May and prices touched an all time high of $147.27 per barrel on July 11.

Weakening of the dollar against major currencies, rise in demand and increasing geopolitical worries supported the rally. But the situation changed dramatically in mid July, as the subprime mortgage crisis rattled the US financial market. Unprecedented losses emerging from financial turmoil led to drop in investment into oil. After July, the dollar recovered sharply as economies in European and Asian countries also suffered from the spillover effects of financial turmoil in the US. As a result, oil prices fell by over 70% from its all time peak.

Opec, which supplies over 40% of total world supply, has decided to reduce supply to shore up prices. But till date, their efforts have not helped bolster oil prices, as there is a growing fear that oil supply is likely to exceed falling demand. Market participants are also wary of the fact that Opec does not abide by its production-cuts strictly.

Efforts taken by various nations to save their economies from the current economic slowdown will come in effect from the second quarter of 2009. If Opec cuts production, then the demand-supply situation can change after the second half of 2009, which could lead to a rise in oil prices.

?Crude oil prices may remain subdued in the short term, but due to all the above-mentioned measures, prices could bounce back to above $60 per barrel in the second half of 2009. Crude prices may trade in the range of $27/barrel to $70/barrel. Locally, crude oil prices will trade from Rs 1,500/ barrel to Rs 3,400/barrel,? he said.