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'Silver should follow gold with a bias towards downside'

Sharleen D'Souza/Mumbai 25 Jun 12 | 08:23 AM

Soy oil prices likely to gain in the coming week from Karvy, says Aurobinda Prasad, Commodities and Currencies Research Head at Karvy Comtrade, in an interview with Sharleen D'Souza. 

Fed's meet has proved to be disappointing for gold, how long will this impact the movement of gold?

Yes, it was well anticipated that gold will break down after the FOMC meet. The impact was immediate as it was proved three times earlier this year. However, the meeting abstract outlined only more action could be in offing provided the labor market weakness continues. So, until July 31 we need to have a careful watch on the labor sector to anticipate stance of the central bank. Irrespective of the immediate impact from Fed decision, an insight into the details showed Fed’s dim growth outlook with a pace ranging between 1.9-2.4 per cent. And targeting further lower inflation to prepare the stage for next easing in June 31 meet would lend support to the metal in short term.

What news should an investor look out for in the coming week for gold?

Market should now look for the EU summit on Jun 28-29 before which Spanish bank audit to be keenly analyzed.  Despite Spain got a bailout package of 100 billion Euros, we think it is not sufficient enough. The amount is roughly equivalent to $126 billion at present EUR/USD rate. The US GDP being 12 times of Spain GDP, the amount is only 18 per cent ($700 billion) of the Troubled Asset Relief Program (TARP) for banks, introduced in 2008 by the US congress. So, it should not be enough for banking recapitalization. These two reports and the above said analysis should be looked for. If proved true, Euro could be seen weakening once again. Gold  therefore seems to be weakening once again next week.

How do you see silver trading in the coming week, will it continue to follow gold?

As discussed above, silver should follow gold with a bias towards downside. The range for silver would be Rs 52,800- Rs 56,400

To what an extent will weakness in the rupee cap the fall in copper?

Since the beginning of the year 2012, Copper has retreated nearly 5 per cent at LME while at MCX Copper futures have gained by 2 per cent. Fundamentally, metal inventories have witnessed stockpiling and are presently maintaining at two months high. Imports from the largest consumer China has remained weak in the last quarter resulting in weak price performance. Further, declining manufacturing and industrial activity has restricted gains and even the flash PMI from China has remained below 50 indicating weakness. From tomorrow onwards, Chinese markets would be closed for this weekend due to Dragon-boat festival and hence Copper prices may remain subdued due to weak downside demand. Even the backwardation is expected to resume due to increased physical premiums coupled with scarcity of supply. According to World Bureau of Metal Statistics, copper market was in deficit by 277000 MT in the first four months of the year compared to surplus of 320000 MT in 2011 indicating lower availability of metal for prompt delivery. Hence, amidst weak manufacturing and industrial activity coupled with subdued physical markets Copper may likely remain weak in the international front. At our domestic market, the rupee has restricted downside, while presently the domestic economy is also improving gradually, and we may expect the rupee to average somewhere around 55.50 to 56 levels. Therefore, weakening international Copper prices might not cap MCX Copper and may support downside. Further, lower domestic inflation and proper monsoon may continue to strengthen the Indian currency and may restrict gains in Copper futures in the near term. Overall Copper (Jun) futures at MCX may likely trade in the range of Rs 408 - Rs 428.


Which agri commodity will give good returns in the coming week?

Soy oil prices likely to gain in the coming week. Delayed sowing in soybean in M.P, limited soybean supply in physical markets in India and expectations of deficient rains due to probability of El-Nino occurrence in later part of the year (which may have negative impact on soybean crop in India for 2012-13 season) may push up the soy oil prices in Indian futures market. The demand ahead of Ramadan in domestic markets also may support the upward momentum in the soy oil prices. However, gains in prices may be limited on macro-economic concerns expecting if there is any slowdown in economy from the major edible oil importing countries mainly China and EU-27.
Price Range- NCDEX Soy Oil Jul’12- Rs 738-764 per10 kg

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