Fresh demand to keep wheat, gold prices on the boil

WEEKLY COMMODITIES OUTLOOK

While spot prices of wheat are expected to move up, futures prices are likely to remain steady at the current levels. Fresh demand amidst the present tight demand-supply scenario is expected to keep spot prices higher than the current levels. Market expects spot prices to soften only when arrivals of the new crop begin late March.

"As for (wheat) spot prices, they are likely to continue an upward trend as the supplies are slipping and there is low government stock," said Si Kannan, an analyst with Sharekhan Commodities.

On December 1, the government's wheat stock was at 77 lakh tonne, down 27 per cent on year.

"On December 6, the government announced that it would sell about 4 lakh tonne wheat in the open market in the December 2005-March 2006 period with about 1 lakh to be sold to flour mills every month," said an Anand Rathi report. This is expected to thwart wheat prices from scaling new highs.

At present, spot prices (ex-Delhi) are hovering around Rs 910-920 per 100 kg and are expected to rise by another Rs 5-10 per 100 kg this week. Today, spot market price (ex-Delhi) was at Rs 916 per 100 kg, up Rs 1 from the previous close.

Futures prices, however, have continued to stay at lower levels than spot prices by about Rs 100-120 per 100 kg for a month now, and are expected to see the same trend for another two months "" till the new crop arrives. This is following high premiums that delivery centres, such as Khanna and Karnal, command.

For instance, in case of ex-Khanna (in Punjab) delivery, prices are at a premium of Rs 43 per 100 kg over the market rates.

Gold: Spot prices "" domestic and overseas "" are likely to rise this week. Reports that central banks intend to increase their yellow metal reserves are holding sway, and most traders will return to the market only by Tuesday after the New Year celebrations.

"Gold prices are likely to see an uptrend and will rally as we enter the year 2006," said V Shivaramakrishnan, a Dubai-based analyst. The rally gets support from physical buying, inflation fears and weakening of the US dollar against the euro.

Domestic spot prices of gold are likely to stay put between Rs 7,550 per 10 gm and Rs 7,700 per 10 gm this week, in tandem with overseas spot gold in the $515-$522 an ounce range.

Further, the huge fund liquidation, which is traditionally witnessed towards the end of the calendar year, is absent this time around.

Analysts feel the current uptrend of prices and the 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. Despite thin trade, physical buying in Asia trade today gave a boost to prices.

Physical demand on the domestic front has made a comeback to the market while demand from China is expected to pick up ahead of Lunar New Year.