As with equities, commodity markets have also seen a rebound since the beginning of 2012, with uncertainty in the global markets seen to be settling, with volatility indicators declining to a level seen last July/August. This has helped commodities and equities rebound.
Also, some positive news, such as the International Monetary Fund hinting at efforts to expand its lending resources, have led to a 10-15 per cent jump in commodities in these first three weeks of calendar 2012. Copper, a bellwether for global economic growth, has seen a rise of a little over 10 per cent in prices, along with zinc and aluminum. Tin went up 16 per cent. Precious metals and commercial agricultural crops like cotton, rubber, coffee and sugar were up six to 10 per cent during the period.
According to Barclay’s Capital, “Progress in the Greek debt negotiations and successful peripheral European bond auctions has bolstered sentiment for the time being.” Going forward, it says, “We expect the slowdown in global metals demand growth momentum to stabilise early this year and for this to translate into a sequential recovery beginning in Q2 (the second quarter).”
China will continue to rule over commodities in the months to come. According to Citi’s commodity outlook for 2012, “Base metals remain challenged, given the current macroeconomic climate. Accounting for close to 40 per cent of total base metals consumption, Chinese demand would be the key price catalyst, with local stimulus policies potentially providing for positive price momentum in the second half of 2012, further supported by any improvement in the global macro environment.”
Interestingly, agri commodities are still lower, compared to six months earlier. However, a prominent gainer among these is rubber, which India imports and is up by 16 per cent in the past three weeks. All commodities where the government has allowed exports have gone up by three to seven per cent (though, in this same period, the currency has appreciated 5.3 per cent). In the case of sugar and cotton, global output may be lower and dependent upon vagaries of the weather. Hence, prices are likely to remain firm.
Cit’s analysis says agricultural commodities’ prices will be “driven by the low inventory levels, uncertain politics and weather, that could be a strain on global supplies”.
There is a rebound in gold and silver as well, but silver has risen faster than gold, as it has industrial uses, too. Gold was up six per cent and silver by 10 per cent. As a result, the price ratio of gold to silver has also fallen from 56.14 to 54.12. According to Ajay Kedia of Kedia Commodities, “This suggests broad-based sentiment is getting more bullish for bullion, with investors jumping into silver because they see it as a cheaper entry point.” In the recent past, silver was down considerably more than gold and looking relatively oversold.
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