Wheat seen weak, Fed stance to steer gold

WEEKLY OUTLOOK

Wheat: Futures and spot prices are seen weak as the Food Corporation of India's open market sale has picked up, according to market players.

Apart from the 1.5 lakh tonne of open market sale for January and February, FCI has also announced an additional quota of 63,000 tonne for February.

The additional quota has been announced only for Delhi, Tamil Nadu, Karnataka, West Bengal, Maharashtra and Kerala, with Delhi getting the maximum at 20,000 tonne.

FCI officials clarified that states where the allocated wheat for January has not been picked up, the deadline will be extended by another week or so. This is to curb speculative rise in wheat prices, especially in the spot market.

FCI open market sale, though minuscule compared with private trade in the grain, acts as a key market trend. An analyst said, "Private traders tend to follow FCI."

According to analysts, Ncdex February contract is expected to decline further as demand from mills is expected remain slow, as they have stocks for another 10 days or so.

But despite a large new crop wheat, to be harvested mid-March onwards, Ncdex April wheat will remain supported around Rs 720-730 (per 100 kgs) levels.

Gold: Outcome of the US Federal Reserve's meeting, slated for tomorrow, is expected to set the market trend. Gold's repeated failure to break through the $568 (per a troy ounce) levels could mean some resistance building up, said an analyst.

The market is expecting US interest rates to be increased by another 25 basis points to 4.5 per cent despite the minutes of December 13 FOMC meet discouraging any further rise in interest rates.

"This will be the fifteenth consecutive rise in US interest rates," said Si Kannan, a senior analyst with Sharekhan Commodities. Also, tomorrow will be the last day of Fed chief Alan Greenspan in office.

"The recent dollar rally may have discounted some of this expectation. However, further rally in the greenback and a subsequent fall in the yellow metal cannot be ruled out if the Fed delivers the hike as expected. Since the rate tightening cycle is believed to be close to its end, the statement that accompanies the decision would carry more importance than ever before since the beginning of this cycle which started at 1 per cent," V Sivaramakrishnan, executive director of Dubai-based Kombench DMCC.

However, in case the Fed maintains a status quo, the recent rise in dollar would be reversed and gold would see a sharp rise. As of now, a fall towards $554 (an ounce) seems possible, added Sivaramakrishnan.