DON'T RUN AFTER GOLD LIKE USAIN BOLT

COMMODITY MARKET INSIGHT

DATE: 12 FEB-2015

DON'T RUN AFTER GOLD LIKE USAIN BOLT

Gold prices eased on Tuesday as a rise in the dollar offset the supportive impact of concerns over Greece's future in the euro zone and fears over escalating violence in Ukraine, which hurt risk appetite. Jeffrey Lacker, a top U.S. Federal Reserve official, told reporters on Tuesday that the central bank should raise interest rates in June. European Commission President Jean-Claude Juncker told Greece not to expect the euro zone to bow to Tsipras' demands in a growing confrontation that has rattled financial markets and prompted U.S. and Canadian pleas for calm and compromise. On the main physical markets for gold, premiums over spot prices on the Shanghai Gold Exchange contracted slightly ahead of next week's Lunar New Year holiday, MKS said in a note on Tuesday, but remained between $2.50-3.50, showing demand has emerged at lower levels.

Bullion counter can witness range bound movement with negative bias tracking weak international markets. Gold can move in range of 26500-26800 and silver can move in range of 37000-38000 in MCX. On domestic bourses weak local currency can support the prices. Gold futures on Wednesday marked their lowest close in about a month as some investors lost interest in the metal on the back of a stronger U.S. dollar. Investors awaited the outcome of a meeting of euro zone finance ministers on Greece's debt obligations to help gauge the next move for financial markets. Euro zone finance ministers met in Brussels on Wednesday to decide Greece's financial fate. Uncertainty over Greece has provided some support for gold in recent days as investors seek out safer bets. Investors ignored the geopolitical headwinds regarding Greece's bailout negotiations and broader worries that the global economy is being buffeted by deflation. We expect gold prices are likely to trade negative on the back of US interest rate outlook.

Silver was down 0.6 percent at $16.91 an ounce. Greece and its euro zone partners engaged in brinkmanship on Monday, with leftist Prime Minister Alexis Tsipras insisting his country would not extend its reform-linked bailout and Germany saying it would get no more money without such a programme. European Commission President Jean-Claude Juncker warned Greeks not to expect the euro zone to bow to Tsipras' demands in a growing confrontation which spooked financial markets and prompted U.S. and Canadian pleas for calm and compromise. We expect Silver prices are likely to trade negative on the back of US interest rate outlook.

Crude oil prices fell for the first time in four sessions on Tuesday after the International Energy Agency (IEA) warned that ample supplies will raise global inventories before investment cuts begin to significantly dent production. Oil stockpiles in member countries of the Paris-based Organization for Economic Cooperation and Development (OECD) may approach a record 2.83 billion barrels by mid-2015, said the IEA, advisor on energy policy to a group of Western nations. The IEA also predicted that demand for oil from the Organization of the Petroleum Exporting Countries (OPEC) will hold at 29.4 million barrels per day (bpd) this year, and said U.S. shale oil output growth will pause before regaining momentum. The U.S. Energy Information Administration (EIA) added to the bearish sentiment in its report on Tuesday that kept its 2015 and 2016 domestic oil production expectations virtually unchanged from the previous month. U.S. crude stocks rose 1.6 million barrels to 413.7 million last week, industry group the American Petroleum Institute (API) said late Tuesday.

Crude oil may open move with negative bias in range of 3020-3150 in near term. Oil tumbled for the second day in a row, with the U.S. benchmark slipping back below $50 a barrel, after a government report showed U.S. crude stockpiles reached a new record high. Oil prices have shown signs of stability in the past two weeks after plunging to nearly six-year lows last month amid a global supply glut. News of oil companies cutting back on investment and a reduction in drilling activity are setting the stage for a slowdown in oil-output growth, especially in the U.S., in the second half of the year, analysts and market experts say. Optimism that the glut could ease has supported prices. U.S. crude stockpiles rose by a slightly bigger-than-expected 4.9 million barrels to 417.9 million barrels in the week ended Feb. 6, according to the EIA. Natural gas may continue its short covering as today EIA inventory data will give further direction to the prices. Overall its prices can hover in range of 170-180 in MCX. We expect crude oil prices likely to remain volatile on concerns that falling U.S. oil rig counts may rein in a market glut

Copper fell on Tuesday as worries over China's economic growth and the outlook for demand resurfaced, though losses were limited by supply disruptions. China's annual consumer inflation hit a five-year low in January, underscoring persistent economic weakness after the country's trade performance slumped in January. The data adds pressure on policymakers to support growth, though China's central bank said it will fine-tune policy to head off a slowdown but avoid overstimulating the economy. Data on Monday showed China's imports tumbled 19.9 percent in January, far worse than expected. However, copper has lost 11 percent of its value this year after a 14 percent drop last year, leading some analysts to say that the bad news is probably priced in for now. Chile's Collahuasi mine, meanwhile, will operate at less than half capacity until Friday at least because of maintenance work. We expect base metal prices to trade mixed on the back of short term shortage and long term surplus is likely to keep base metal prices mixed. Base metals may trade sideways with weak bias as investors will eye US advance retail sales and euro zone industrial production data for further direction. Copper may trade in range of 347-355 while Lead may move in range of 111-113. Aluminum may move in range of 112-114. Nickel may move in range of 910-932 in MCX. Zinc may move in range of 131-133. Copper steadied on Wednesday as some investors bet that a floor had been reached after heavy losses, while tin touched a fresh 2-1/2 year low on worries about weak demand. European stocks and the euro fell as euro zone meetings on the Greek debt crisis threatened to give rise to confusion rather than clarity. Gains were capped as physical demand in top metals consumer China was still soft and sentiment bearish ahead of the Chinese New Year. Everybody is just waiting for after the Lunar new year holidays to see how demand will do.