MCX India Commodity Weekly Outlook 20-25 May’2013

BULLION:

Previous week, all the major currencies traded downhill, which boosted the dollar and led to a Five percent, fall in gold demand. We have also noticed a fall in ETF holdings fell by 23% YTD, which pressurized gold prices. On the other hand, we do not anticipate the same pace of slump in gold prices for this week though the trend is expected to remain bearish. The euro depreciated by 1.15% against the dollar, which should keep on to remain weak due to the continuing economic crisis in the euro-zone. The European Union is planning to take measures to improve financing opportunities throughout the economies, which should support the euro against the dollar and limit the negative aspect in gold prices. The euro-zone current account balance should improve, backed by a slowdown in imports though consumer confidence should also rise on the back of the ECB’s rate cut last month. This is predictable to limit the downside in the euro as well as gold.

The US government has proposed a plan to decrease its deficit by $ 1.15 trillion through increasing taxes and limiting debt purchases. This be supposed to help increase revenues and prove to be a supportive factor for the economy and the dollar though it should weigh on gold prices. The US president Mr. Barack Obama is scheduled to deliver his second commencement speech, the impact of which be supposed to be seen on Monday morning. The FOMC meet where policy makers are expected to agree on the continuation of the QE will attract investor interest and cause them to remain cautious over lowering or raising the bond purchases according to the prevailing economic circumstances. Weak manufacturing releases from the Chicago and Kansas manufacturing regions and the housing and durable goods data which are expected to increase should strengthen the dollar and pressurize gold prices. For that reason, we anticipate the dollar to remain higher than the other major currencies, extending the fall in gold prices.

This Week, Silver prices are anticipated to remain weak. The euro is expected to remain weak against the dollar, which should pressurize silver prices. The key economic releases from Germany such as improving PMI numbers are expected to support silver prices. The producer price index and trade balance might increase as well, also supporting silver prices on the back of a rise in the euro. Weak manufacturing data from the Chicago and Kansas regions and improving housing and durable goods data should pressurize silver prices on the back of a strengthening dollar.

On the whole, we recommend bullion remaining on the selling side for this week.

Gold Weekly Outlook:

Projected High range for the Week: 26877-27448

Projected Low range for the Week: 26389-25818

Weekly Major Resistance on Upside: 2244-27652-28060

Weekly Major Support on Downside: 26102-25368-24960

Weekly Trend Deciding Point @ 26510

Silver Weekly Outlook:

Projected High range for the Week: 43985-45514

Projected Low range for the Week: 45166-43637

Weekly Major Resistance on Upside: 44553-46476-48399

Weekly Major Support on Downside: 41494-40358-38435

Weekly Trend Deciding Point @ 43417

BASE METALS:

We Indicated in Our Last week News Letter as base metals remained weak and prices declined in the range of 0.95% -3.48% at the LME, with the omission of lead, which gained 1%. A higher dollar and weak economic releases continued to support the downside in base metals. Stock levels at the LME warehouses have also increased in the range of 1.78%-6.75%, apart from nickel and lead as their stocks declined marginally 0.14% and 1.85% respectively. The lower prices should have resulted in some buying activity and a fall in warehouse stocks however, gains in prices were limited on the back of a higher dollar (up 1.33% against the majors).

This week is likely to fuel volatility in base metals on the back of both economical as well as fundamental growth. Fundamentally, the refined metal prices have remained geared mostly towards the downside, resulting in lower scrap usage. Chinese copper scrap usage which used to contribute nearly 32% of the total metal demand fell nearly 4.6%. This indicates that, as prices have fallen; metal users have shifted to higher metal grades, which might limit the price free-fall in the long term for base metals. However the economic developments should continue to indicate weakness and support the downside in base metals in this week. Expenditure cuts and confiscation in the US should be watched in the beginning of the week, along with the minutes from the meets held by the major central banks. We anticipate the central banks to continue to fuel uncertainty as inflation numbers have declined of late, backed by loose monetary policy. The President of the US and the Fed Chairman are scheduled to speak on this week, which should provide further cues for the markets, causing them to align themselves accordingly. Key speeches from the ECB governing council members including the Chief Mario Draghi should fuel volatility in base metals prices in this week. On the economic data front, we expect the loose monetary policy to hold for the time being, with Japan continuing its record asset purchase. On the other hand, gains in base metals might be negated on the back of a higher dollar against the majors and should postpone other currency buying in dollar-denominated base metals. The euro-zone’s economic liberate should improve at a slower pace post the recent rate cut by the ECB and also support higher IFO sentiments. Germany’s GDP should also grow at a slower pace along with improving PMI numbers. However, the demand for base metals might not improve significantly due to weak Spanish smelting activity and rising costs. At the end of the week, we expect a slight recovery in base metals prices, supported by improving Chinese PMI data and higher US durable goods. Consequently, we anticipate base metals to remain mostly weak in the first few days of the upcoming week while a slight recovery in prices is expected over the weekend.

Copper Weekly Outlook:

Projected High range for the Week: 409-418

Projected Low range for the Week: 405-396

Weekly Major Resistance on Upside: 414-423-431

Weekly Major Support on Downside: 395-385-376

Weekly Trend Deciding Point @ 404

ENERGY:

This Week, crude oil prices to trade higher. From the fundamental front, crude oil stocks have risen above 394 million barrels over the last week, touching the highest level of the last 80 years. Imports have increased marginally to 7.62 mb/d from 7.60mb/d, aided by a rise in the production level. Over the last week, refinery utilization has also amplified, indicating a rise in demand from the refineries to produce petroleum products. In front of the summer driving season, refineries are expected to continue higher capacity utilization, which might support an uptrend in oil prices. Oil Movements has also reported that demands from the Asian countries are expected to rise in May. Most importantly, ahead of hurricane season starting 1st June, the National Hurricane Centre will release its forecast on 23rd May. Other sources like Accu-Weather and the University of Colorado have already forecast a busy hurricane season with 19 tropical storm and 9 hurricanes expected. Therefore, oil prices may continue their upside trend as demand from the refineries will be more in order to face the uncertainty. Additional than the above fundamentals, key economic events are scheduled int he week. Mr. Barack Obama is scheduled to deliver his second commencement address in Atlanta on Sunday, which should show an effect on the markets as early as Monday. Therefore, oil prices may take a breather on first day of the week. Thereafter, major events like the BOJ’s monetary policy meet and the US FOMC minutes are due on Wednesday, the same day as the US Energy department’s weekly inventory report. As a result, investors must remain cautious as oil prices may show huge volatility, backed by major economic releases and events. Other weekly economic releases are expected to paint a slightly positive picture of the major nations, which may support oil prices on expectations of higher fuel demand. On the other hand, key developments from the US are expected to support gains in the dollar, which may limit gains in oil prices. For more details, refer to our weekly economic report. Major events to watch out for are the BOJ monetary policy meet and the FOMC meet’s minutes due on 22nd May and the hurricane season forecast by the NHC on 23rd may.

Overall, we recommend remaining on the buying side for the coming week.

Crude Weekly Outlook:

Projected High range for the Week: 5330-5451

Projected Low range for the Week: 5223-5102

Weekly Major Resistance on Upside: 5408-5494-5580

Weekly Major Support on Downside: 5165-5008-4922

Weekly Trend Deciding Point @ 5251

MCX WEEKLY TECHNICAL RECOMMENDATIONS:

SELL GOLD MCX JUN NEAR 25950-26150 SL 26655 TGT 25300-25050

SELL SILVERMCX JULY NEAR 42800-42900 SL 43960 TGT 41700-41300

BUY COPPER MCX JUNE NEAR 403-401 SL 395 TGT 413-420

BUY CRUDE OIL MCX JUNE NEAR  5290-5260 SL 5160 TGT 5380-5405

ECONOMIC RELEASES OF THE WEEK: