Commodity Weekly Outlook 22-27 July’2013

BULLION:

This week might prove to be a crucial week for gold prices may witness instability on the back of global economic releases and the fluctuation in the currencies. The euro-gold relative has enhanced slightly, which might be extended to this week. The gold dollar relation has also showed an inverse pattern, which is anticipated to continue to support gains in gold prices this week. SPDR assets have decreased by 0.70 percent previous week on the other hand gold prices have shown an increase of 1.21 percent. This illustrate that investors are still bearish on gold prices and selling their holdings. The CFTC longs have increased by 2.16 percent in comparison to the shorts, which encompass increased at a slower pace of 1.81 percent. This point to gold prices in this week might remain on the higher side. The relation between gold prices and the SPDR holdings are moving in an inverse fashion. SPDR, the largest bullion-backed ETF declined by 0.70 percent previous week. On the other hand, gold prices have shown an increase of 1.21 percent. This shows that ETF holdings are not following gold prices. From the euro-zone, investors may intimately follow the development from the G-20 meet, which may show its effects this week. The PMI numbers from Germany and the euro-zone should also increase at a slower pace, which could extend the gains in the shared currency. German IFO numbers are also anticipated to remain positive, which would support the euro against the dollar and extend the gains in the gold prices.

Commencing the US, the Chicago Fed National activity index might remain to some extent higher, along with the existing homes sales, which strength support the dollar and weigh down on gold prices in the beginning of the week. On the other hand, the new home sales data is expected to decline on the back of a decline in building permits and housing starts. This power support gold prices and pressurize the dollar. Fed chief Bernanke stated previous week that the asset purchase program would be based on the economic indicators. The dollar is not expected to rise at that pace, which could limit the gains in gold prices. On MCX India, gold prices may remain slightly lower due to the rupee’s appreciation. On the other hand, any change in the rupee might support gold prices. Therefore, gold prices might remain volatile on the back of the G20 meeting outcome and economic pointer.

The Silver prices may remain volatile this week. The CFTC longs have refused by 0.76 percentage compared to the shorts, which increased by 1.62 percent previous weeks. This indicates that silver prices might remain under pressure in this week. On the other hand, the PMI numbers from the euro-zone and Germany might revive silver prices but, a spin in the prices is not anticipated. The association between silver and the euro has also slightly declined, which shows that silver prices may not get support from the euro, which is anticipated to appreciate this week. From the US, the Chicago fed national manufacturing index might remain positive along with the existing home sales which would support the dollar and pressurize silver prices in the beginning of the week. However, silver prices may revive at the end as home sales numbers and are not expected to remain positive, which might bulldoze the dollar and silver prices may recover from the losses. On MCX India, silver prices may remain under stress on the back of the appreciation in the rupee against the dollar. Consequently, silver prices may remain volatile this week on the back of economic indicators around the globe and the euro-zone’s concerns departing on.

Mcx Gold Aug Weekly Levels:

Gold Resistance on Upper Side at 27007-27039-27610

Gold Support on Lower Side at 26322-25939-25637

Trend Deciding Point at 26624

Mcx Silver Sep Weekly Levels:

Silver Resistance on Upper Side at 41567-42780-43993

Silver at Support on Lower Side at 39536-38718-37505

Trend Deciding Level at 40749

BASE METALS:

More than the last duo of weeks, we have observer the metals register a diverged price performance. Increasing heterogeneity in base metals has been supported on the back of mixed ground rules. Even previous week, we observer nickel prices gain 2.79 percent while lead & zinc declined 1.88 percent and 2.05 percent respectively at the MCX India. This designate that after witnessing a bearish trend for the last couple of months, base metals are now turning heterogeneous due to the discontent in the individual markets. The provide side has contributed with higher production in the first half of the year and now, amidst weak refined metal prices the supply side is aligning with the demand side, leading to such discontent. In this week, we anticipate the production curtailment in the Chinese nickel pig-iron sector and aluminum to continue, which is supposed to provide higher gains in these metals compared to copper, zinc and lead. In addition, the slow revival in the global manufacturing sector is supporting certain base metals to benefit more compared to the others. Intended for instance, higher US manufacturing should contribute to the higher usage of select base metals including steel while the demand for zinc and lead should continue to stay put weak.

In addition, the LME bonded warehouse stocks have increased in the range of 0.85 percent to 6.26 percent for all base metals apart from copper (stocks have declined 0.38 percent). Copper stocks are currently maintaining at the lowest level in the last 11 months in China, which should support the slight gains at the beginning of the week. On the other hand, concerns of increasing mine supply and higher second quarter production figures by the major miners should cap gains in the metal prices in the this week. We anticipate the elevated stocks to use ratio (amount of metal available for daily fresh booking at the LME) for all base metals (expect lead) should also continue to limit the upside in base metals in this week. Beginning the global economic perspective, the free interest rate in China and fading political concerns in Europe should support base metals to witness a positive opening at the beginning of the week. Nevertheless, the gains should fade as the weekend approaches on the back of slowing Chinese PMI and falling industrial profits. At the domestic front, the rupee should also continue to appreciate in this week, supported by a higher euro and should limit the gains in base metals at the MCX. General, we anticipate the heterogeneous move in base metals to remain intact in this week.

Mcx Copper Aug Weekly Levels:

Copper Resistance on Upper Side at 421-428-434

Copper Support on Lower Side at 410-405-399

Trend Deciding Point at 416

Mcx Nickel July Weekly Levels:

Nickel Resistance on Upper Side at 857-874-891

Nickel Support on Lower Side at 809-779-762

Trend Deciding Point at 826

Mcx Lead July Weekly Levels:

Lead Resistance on Upper Side at 124-127-130

Lead Support on Lower Side at 119-117-114

Trend Deciding Point at 122

Mcx Zinc July Weekly Levels:

Zinc Resistance on Upper Side at 113-115-118

Zinc Support on Lower Side at 108-106-104

Trend Deciding Point at 110.50

Energy:

Crude oil unrelenting its upward splurge for the fourth continuous week especially as we intimated in the previous weeks for the US-based WTI; with its discount to the other global benchmark Brent disappearing for first time since October 2010. WTI Crude for the most active September delivery jumped 2.2 percent in the week ended 19 July to close just under $108 a barrel. In the Indian markets, oil prices at the MCX for the week ended 20 July closed at Rs 6350, gaining nearly 1.1 percent during the period. The local up-move has been muted, in the red to the moderate depreciation in the rupee against the dollar. Spot rupee for the period under review closed at 59.35, appreciating nearly 0.5 percent during the preceding 5 trading sessions.

Internationally, WTI oil at the NYMEX has ascended almost 17 percent over the past one and half months whereas Brent crude for the same month’s settlement has gained at a much smaller pace of around 8 percent. Higher gains in the US-based benchmark are backed by the fact that US oil market has seen a structural shift in overall storage space and consumption dynamics over the previous few months. While Brent oil remained at a noteworthy premium compared to the WTI for almost 3 years, the spread between the two stood as high as $25 per barrel in February this year. It has been declining persistently since then. The lower pricing of WTI oil, despite it being much sweeter contrast to Brent oil can be credited to the high baggage of inventory stocks at the major storage hubs for the WTI, appended with stagnant demand in the larger part of the first half in 2013. On the other hand, WTI prices started to reduce their discount to the Brent as the rise in pipeline capacity slowly and steadily crushed the glut of oil at Cushing, Oklahoma, the delivery point to the WTI. Increased pipeline infrastructure helped the oil smoothly flow from the storage hub to the US Gulf Coast, where the actual refining and later distribution of oil can take place.

A lessening in logistical bottlenecks coincided with the better demand season in the US over the last one and a half months. Crude prices gained, bolstered by robust demand due to the key summer driving season which runs between June and September. This impacted a higher than normal demand for US crude oil, particularly Gasoline and also led to an increase in refinery utilization. In the last three weeks, petroleum stocks in the US have plunged over 27 million barrels, creation it the highest cumulative 3 weeks decline in at least 30 years. The stocks at Cushing have now slipped to 46 million barrels levels from around 52 million during the start of this year. Advanced draw downs in inventory are backed by the improvement in overall refinery rates, which moved up to 92.8% of the total capacity, its highest levels since 2005.

The key question which arises now is can oil prices, particularly at the WTI extend their overall rally in the coming week? While we still believe that the overall positivity in oil prices, owing to better demand prospects from the US will continue in the short to medium term, a moderate decline in prices or rather profit booking cannot be ruled out after it stepped up around 17 percent in the last 4 weeks, ending 18 July 2013.

If we examine the price, volume and open interest data for the past few weeks; it too depicts cautiousness for the week ahead. Under the PVO for the most active September contract, volumes Open Interest increased by over 16 percent last week whereas oil prices jumped up 2.2 percent. While both volumes and open interest continued improving, it is slightly higher than the 30 percent growth in both the Volumes and Open Interest seen in the previous week. If we take the cumulative data for the two future Contracts i.e. September and October, a similar trend is visible, wherein rate of growth in both volumes and Open Interest is coming down. Broadly, this shows that trader participation in the overall up move is slowly falling.

As of the economic data front, the markets will look into the Housing and long-term Durable goods order from the US whereas globally, chief readings on the flash manufacturing and services PMI would be watched closely. This week contains fewer economic readings from the major global economies and could put thrust to the major factors on Housing data from the US, along with the Flash PMI from China and Europe.

Another individual factor which needed to be given higher weight age is the Weekly Crude inventory data. As talk about above, crude inventories have been falling in a big way for past 3 weeks. We anticipate a similar trend to continue though the pace of decline may reduce a bit. Beneath this, variables like Gasoline might see a declining trend regaining after the surprising nearly 3 million additional barrels in Gasoline stockpiles. The refinery utilization rate on the other hand may attain some stability after the strong 0.4 percent growth in capacity utilization rate last week to 92.8 percent. Read more in detail for  Commodity Weekly Outlook.

Mcx Crude Oil Aug Weekly Levels:

Crude Resistance on Upper Side at 6545-6656-6767

Crude Support on Lower Side at 6276-6118-6007

Trend Deciding Level at 6387

Mcx Natural Gas July Weekly Levels:

Natural Gas Resistance on Upper Side at 232-239-246

Natural Gas Support on Lower Side at 215-206-199

Trend Deciding Level at 222

WEEKLY POSITIONAL CALLS:

SELL GOLD MCX AUG NEAR 26765-26925 SL 26955 TGT 26525-26435

BUY SILVER MCX SEP ABOVE 40750 SL 40225 TGT 41215-41855

BUY COPPER MCX AUG ABOVE 416 SL 412.50 TGT 421-425

SELL NICKLE MCX JULY BELOW 832-844 SL 845 TGT 814-810

SELL CRUDE OIL MCX AUG BELOW 6385 ADD MORE ON RISE 6435 SL 6505 TGT 6335-6305

BUY NATURAL GAS MCX JULY NEAR 224-222 SL 217 TGT 230-235

ECONOMIC WEEKLY DATA INDICATORS