The first trading week of 2010 witnessed strong upsides in commodities with Reuters/Jefferies CRB index, a global commodities benchmark trading, going up by 2.61%. The best performer was silver, followed by crude oil and gold that appreciated by 4.27% and 3.76%, respectively. On the macro economic front, data in the US was slightly mixed making the greenback slightly range bound. The ICE dollar Index, a barometer of greenbacks performance against a basket of six major currencies, ended the week on a negative note after the US December payrolls data showed slightly disappointing numbers.
As per the Bureau of Labor Statistics, non-farm payrolls in December fell by 85,000 as compared to the expectations for no change. The fall in non-farm payrolls was accompanied by a stable unemployment rate at 10.0%. US construction spending fell 0.6% after a 0.5% drop in October but was offset by a better than expected ISM numbers.
Improving housing and manufacturing data in the US is indicative of the fact that the recovery is gaining pace in the world?s largest economy. Precious metals traded higher in the previous week with silver outperforming gold. Other than the weak dollar, the major driver was the rallying oil prices which triggered inflation-led buying in precious metals.
Even though gold rallied from the first business day of 2010 by almost $40 on COMEX, investment demand witnessed some downturn with the world’s largest gold-backed ETF, SPDR Gold Trust holdings going down to 1,119.54 tonne as of January 8, a fall of 14.08 tonne from 2009-close. For the coming week, we expect silver will continue to outperform gold as it has given a strong break out above $18.28 levels on COMEX. The next target in silver is seen at $19.20 and then at $19.50.
On MCX, silver March contract can possibly test Rs 29,000-29,500 levels. Crude oil futures rose for the consecutive fourth week on hopes of economic recovery in the major oil consuming country like the US and a slight dropdown in dollar which boosted oil?s appeal as an alternative asset. The rally in oil was also supported by cold weather in the US and Europe triggering demand for distillate fuel which includes heating oil.
Oil traders have ignored the MasterCard Spending Pulse report which showed a fall in US retail gasoline demand by 3.5% (weekly basis). The weekly inventory report released by the US Energy Information Administration showed a build of 1.3 million barrels in crude oil stocks. Consensus expectations was for a drop of 0.5 million barrels. The recent development is indicating a bullish momentum in crude oil but Opec?s compliance rate on the output cut will have to be closely watched, as it can cap the rally in oil prices. It is estimated that the cartel will witness a huge build in oil inventories in the next six months unless and until the members step up their compliance rate with the agreed output targets. The expectation is for a rise of 800,000 barrels per day this quarter and 1.6 million barrels per day in the second quarter.
For the week we expect crude prices to trade in the range of $81.50-84 levels on NYMEX. Strong resistance on the upside is pegged at $84.90 a barrel, break of which will take the prices to as high as $87- 90 a barrel. On the industrial metals front, copper continued its upward momentum for the fourth consecutive week and traded higher by 2.10% on COMEX despite higher stockpile and an end to Chilean mine strike. The workers at world?s No 2 Chile Chuquicamata mine last week voted to end its two-day strike and accepted an improved wage offer from top copper producer Codelco.
The major driver in copper?s up movement to a new 16-month high is the ongoing investment money flow and prospects of improved industrial demand in the year 2010.
Chinese monetary tightening weighed on investors? sentiments later in the week and the metal witnessed a much needed correction. Technically, copper has given a break out above $3.50 lb on COMEX and the next up side target is at $3.60 lb and then at $3.65 lb. Strong support is pegged at $3.30 lb.