By FXEmpire.com
Global commodity markets, as well all asset markets, are currently in a state of turmoil, buffeted by negative sentiment and lack of confidence about growth. Risk aversion has become the overall theme. Contagion from Europe’s worsening crisis and lack of clear path forward has meant that uncertainty will continue for some more time. Adding to the choppy sentiment is China’s economy which shows signs of slowing, if the April trade data are anything to go by.
So, risk aversion, macroeconomic uncertainty and a firmer dollar have combined to pressure the markets down. As punters sell-off and exit commodities over demand concerns, prices are under downward pressure. Little wonder then that week-on-week, prices of most commodities – crude, all precious metals, most base metals and many agricultural products – declined. Gold fell 1.3 per cent and silver by a modest 0.8 per cent. In the base metals complex, nickel, tin and zinc gained and other lost. In line with the rest of the commodities complex, agricultural prices fell over the past week with sugar and coffee prices notably dropping to 21-month lows.
Choppy behavior will be the market’s main feature. Sustained flow of positive macro data is critical for the market participants to gain confidence. While it certainly is time to be cautious, it is not the time to go short. Commodities with tight fundamentals are the ones with potential for price performance when the situation normalizes.
The entire precious metals complex continues to face price correction driven by European political uncertainty and dollar strength. Admirable performance of the greenback vis-?-vis the euro is weighing on prices, especially gold. In the near-term, the yellow metal will continue to face the dollar pressure. It can get worse, if the euro were to weaken further.
At the same time, physical demand is not forthcoming. The world’s largest gold consumer, India, is currently facing a rapidly weakening rupee which negates the advantage of a price fall in dollar terms, keeping imported gold expensive in the domestic market. Consumer resistance to high prices is stark. In the world market, the silver lining for gold is the resilience of ETP holdings. If outflows begin there, prices have the potential to collapse.
On Friday, gold was at $1,570 an ounce, little changed from the previous day’s $1,569/oz. US markets are closed for the Memorial Day holiday, so Friday saw little action and today’s volume should be very light as we draw to the close of the month.
Click here for further Gold Forecast.
Originally posted here
