The commodities market has seen mixed actions in the week with gold, silver, crude, natural gas moving higher. However, base metals complex witnessed some form of correction in prices. Gold surged past $1,000 per ounce on the Comexes due to technical buying and dollar weakness. Both gold and silver prices were lifted by longer term inflationary expectations. Physical buying is lethargic, a fact underscored by falling imports from India and Turkey, traditionally large importers of the metal. India?s gold imports in August slumped more than 85% from a year earlier ,as high prices and an inauspicious period to buy the yellow metal have condensed the demand.

Shradh, a period for paying homage to ancestors, is from September 5 to 19. Buying would be limited during this period and even marriages are limited. But the market has seemingly discounted the news of slack Indian gold import which can be seen from the prices touching $1000 an ounce. On the other had, investment demand is picking up. The world?s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings increased from 1,061.83 tonne on August 25 to 1,077.63 tone as of September 8, an increase of almost 1.49%. Investments in other ETF?s are also on the rise. The dollar, which is currently the major driver of gold prices, has given a definitive downside breakout on the charts and is expected to extend its slide against the basket of currencies. Dollar influence is expected to continue exerting significant control on gold prices. We expect gold and silver prices to trade higher due to different fundamental and technical setup.

Till the market holds $987-981 (MCX 15560-15468) levels, we expect market to test $1006-1011 (MCX 15850-15950).Dips should be used for creating long positions. Crude oil, along with precious metals, has traded firmer in the week supported by inventory data, Opec?s decision to leave quotas unchanged and the IEA?s better outlook for oil demand next year. The International Energy Agency in its monthly report gave its expectation that global oil demand will be 0.5 million barrels per day more than previously forecasted on back of stronger than expected US and Chinese fuel consumption. World oil consumption would average 84.4 million barrels per day in 2009, down 2.2% from 2008, due to the economic downturn.

But it also said that the demand would pick up next year, rising almost 1.3 million barrels per day, or 1.5%, as recovery takes hold. But IEA, on the other hand, has mildly lowered its global demand outlook to 83.67 million bpd in 2009, a fall of 1.78 million barrels per day compared with a year earlier.

This mixed forecast has been one of the factors in capping oil gains. As the gains in crude oil has been mainly due to sinking dollar and a rise in inflationary concerns, for the coming week we expect that oil market could witness some correction on back of bleak fundamentals and overbought technical setup. With strong technical resistance at $74.30, we expect market to once again slide below $70. Near-term resistance in crude oil is at $72.50 and then at $73.45.Support comes at $70.80 and below there at $69.70.On MCX, the resistance is seen at Rs 3,561 and above there at Rs 3,640. Support levels would be Rs 3,371 and Rs 3,260.

Base metals complex in the week were mixed with copper hitting fresh highs and then sliding back to key support levels. Copper plunged from its highs as increased inventories reflected poor demand. Copper inventories rose nearly 25% since early July. Lead futures, which had given a significant run up in past few sessions corrected as a report showed China?s lead market is in surplus despite smelter shutdowns in the country. As per a survey china?s refined lead surplus is expected to grow this year and widen further in 2010. The figures show that lead production is expected to rise 2.8% outpacing the consumption growth of 1.8%.Fundamentals in base metals is still bleak which can pressurize the prices on the downside but dollar weakness will provide the much needed support to prices. We expect market to trade in a broad range of Rs.300-320 on MCX. Break of the range will decide the direction. Week?s top pick would be precious metals.

?(The writer is head (commodities), Motilal Oswal Group)