Wheat seen steady; gold rally to continue

WEEKLY COMMODITIES OUTLOOK

Spot and futures prices of wheat are seen steady at around the Rs 920-930 per 100 kg level.

Wheat prices had shot up to Rs 940-945 per 100 kg (ex-Delhi) following the government announcements to cut food subsidy by raising prices of wheat and rice for APL (above the poverty line) population in the public distribution system (PDS).

The decision to cut subsidy, however, is put on hold yesterday following political pressures by constituents of the UPA, led by the Left and the Congress.

It is known that over 40 per cent of subsidy towards PDS gets passed on to millers via unfair means. Thus, a cut in subsidy impacted the millers' buying price of wheat and pushed up prices. However, the market seems to have failed to understand that the government has reduced APL quotas in regions where the offtake is low and not overall.

Also, with the northern parts of the country in a cold wave, the likelihood of frost affecting the yield also pushed up futures prices. According to agricultural experts, if the cold wave, along with fog, continues for another week, it can hit yield of the crop in Punjab. Recently, the wheat crop in Punjab, Uttar Pradesh, Haryana and Rajasthan has gained in yield following this cold wave.

Currently, fresh demand amid a tight demand-supply scenario is expected to keep prices high. Market expects spot prices to soften only when new crop arrivals begin late March.

Futures prices, however, continue to tread lower than the spot by about Rs 80 per 100 kg for a month now and are expected to do so for another two months "" till the new crop arrives. This is following high premiums that delivery centres (like Khanna and Karnal) command. For instance, in case of ex-Khanna (in Punjab) delivery, prices are at a premium of Rs 41 per 100 kg over market rates.

Gold: The yellow metal glitter is set to sparkle more this week, and if analysts are to be believed, it may even touch a high of $580 an ounce.

At 1400 IST, overseas spot gold was trading at $545-546 an ounce. Factors such as weakness in the dollar against other currencies "" especially the euro and the yen, news of central banks to increase their yellow metal reserves, and inflation fears supported gold buying by funds and institutional investors.

"Gold prices are in an upswing and may touch $580 an ounce," said V Shivaramakrishnan, a Dubai-based analyst.

Barclays Capital noted, "Net-speculative length in precious metals is large, though falling. Net length in gold has been in decline for four consecutive weeks, and in other precious metals it as a share of total open interest is below record highs. Geopolitical uncertainty and a weaker dollar are likely to attract renewed buying interest in the precious metals complex. This is also spurring renewed speculative interest in the energy complex."

The rise in the domestic market will, however, be lower than that in the overseas market, following weakening of the dollar against the rupee. This has, however, not been able to boost physical gold buying in India, which has been badly hit by spiralling prices.

Domestic spot prices of gold are likely to remain between Rs 7,700 per 10 gm and Rs 8,050 per 10 gm this week, in tandem with overseas spot gold between $535-$580 an ounce.

Analysts felt the current uptrend of prices and emergence of gold as a safe haven investment vis-à-vis currency have led to this change in the scenario and will further boost the gold rally.

Central banks in China, South Africa, Argentina and Russia are considering raising their yellow metal holdings. These banks, mainly in the US and Europe, hold almost a fifth of the world's gold supply as a reserve asset, and are the biggest holders of the yellow metal.