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BULLION:
With constant slide in the gold prices since last FOMC meet on June 18-19 the precious metal has no
longer been a safety net. As analysts predict, the yellow metal is headed for a further downside. The
U.S. Comex gold futures touched a low of $1,196.10 on Thursday, and are heading towards a loss of
over 24 % for Q2.
Since the recent FOMC meeting on 18-19 June, the gold futures have lost 12%, the S&P 500 index has
dropped 2.8 % while the Euro Stoxx 50 index has declined 3 percent.
Further, a latest data released from the MNI Chicago Report showed that business activity in the U.S.
declined this month. The business barometer fell to 51.6 in June from 58.7 in May, missing the
median estimate in a poll of economists. The gauge stayed above the 50 level that separates
expansion from contraction.
According to Saxo Capital Markets UK, during the same period in 2012 there has been a 288%
increase in the amount of gold trades being placed by its subscribers.
“We see gold still dropping like a stone on route to the next major technical target of 1150. I think
gold will eventually stabilise, but whether we will see a meaningful bounce from here will require a
long period of confidence building from central banks, as many investors have been badly hurt,” said
Ole Hansen, Head of Commodity Strategy, Saxo Capital.
Yet after a decade long rally, gold experienced its biggest fall in value for 30 years in April and again
this week tumbling to its lowest level in nearly three years, sparked by the Federal Reserve setting
out a time frame for the US central bank to exit its stimulus programme, as well as the threat of
heavily indebted Eurozone countries selling their gold reserves.
“Volatility in gold options has picked up over the past week. Investors are still nervous about the
potential for further losses. This is demonstrated by the fact that put volatility is higher and a
majority of the top 10 most-traded strikes are puts,” Hansen.
Saxo Capital further maintained that in the long run the outlook for gold remains uncertain. Although
in theory the decrease in the price of the precious metal shows an improvement in the global
economy, it is still heavily affected by the inflationary policies introduced by the Federal Reserve,
European Central Bank and Bank of England.
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ENERGY:
Global supply of crude oil is constantly rising year on year. From around 84.34 million barrels per day in
2009, global oil supply is expected to average around 89.88 by the end of 2013, rising by almost 73,000
bpd compared to 2012. Crude oil supply rose by 2.1% in the year 2012 as compared to 2011. The sharp
increase in production numbers was mainly achieved by the US which was the main contributor as the
domestic production in the nation reached record highs.
Further, shale evolution which is underway in the US has resulted in these higher production numbers.
Also, OPEC (Organization of Petroleum Exporting Countries) output seen at record levels, remained above
the agreed quota by OPEC members throughout the year 2012.
On the other hand, global demand is not pretty good. The US, which used to be the top consumer of
crude oil, has cut down its oil imports significantly in the recent past. The enduring economic worries in
Europe and China’s slowing economic conditions are taking a toll on the demand for crude oil. The pace of
China’s oil demand growth appears to be slowing as its economy is struggling with slower growth across
sectors.
Continued production growth from US tight oil formations and Canadian oil sands have helped the US to
reduce its reliance on oil imports. The US is also expected to cut down on imports of crude oil to virtually
zero if the pace of shale oil and gas production growth keeps rising and the demand for crude oil
continues to slide further in the nation.
Changes in the demand and supply equation would be felt from the third quarter of 2013 as seasonal
demand generally ends in the US and Europe by that time. Also, lower-than-expected demand from Asian
buyers as well as from the developed economies will further weigh on oil prices.
US shale oil production has also been rising constantly with the implementation of new techniques such
as hydraulic fracturing and horizontal drilling. There are huge shale deposits outside North America,
which American companies and the government are trying to tap and convert into shale oil and natural
gas to boost the energy industry.
Basically, shale oil is defined as unconventional oil extracted from shale formations. Earlier, shale oil used
to be extracted through vertical drill. However, now with the introduction of improved hydraulic
fracturing and horizontal drilling, exploration of shale oil has become much more feasible.
This has lead to a sharp inclination towards horizontal rig counts, which rose by 60% compared to the
levels of 2009. Currently, horizontal rig count stands at around 1,092. On the other hand, the count of
vertical and directional rigs also rose owing to rising oil production in the nation. Both rigs – vertical and
directional - showed an increase of 15.5% and 20.7% respectively.
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BASE METAL:
The trend in copper futures for August delivery on India's Multi Commodity Exchange (MCX) is negative and
intra-day traders may sell at higher levels.
“For intra-day, support for the commodity is seen at 402 and 400 levels while resistance is seen at 409 and
412.5 levels,” said Tarang Parmar, Research Analyst at Commodity Online.
On Thursday, MCX copper traded higher but prices were failed to sustain at higher levels.
MCX copper for August delivery was seen trading down by 0.88% at Rs.405.25 per kilogram as of 03.21 PM IST
on Friday.
Copper prices in the international market remained negative on concerns over economic recovery in China
and recent indication that the US Federal Reserve may end its monetary stimulus on improving economic
conditions in the United States.
On Thursday, the data released by the US Commerce Department showed that consumer spending in the US
rebounded in May showing an increase of 0.3% after a 0.3 % drop in April.
The consumer spending in the US accounts for 70% of the US economic activity. Though the pace of spending
has slowed from the 2.6% annual rate notched in the first three months of the year, consumers will likely
continue to drive growth in the second quarter.
Copper futures for September delivery on Globex platform of Comex was seen trading slightly up by 0.45% at
$3.073 per pound as of 04.02 PM IST on Friday.
Also, US jobless claims for unemployment benefits fell 9,000 to a seasonally adjusted 346,000.
MCX nickel for July delivery is negative and the commodity may trade with a negative bias during intra-day
trade.
“For intra-day, support for the commodity is seen at 818 while resistance is seen at 834 and 841 levels,” said
Melbin.
“Traders may sell on rise near 832 with with stop loss of 841 for the target of 823,” noted Melbin.
Lead futures on India's Multi Commodity Exchange (MCX) for July delivery is negative and further downward
movement is expected in the commodity prices.
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