Gold Prices Fall, Base Metals Trade Flat, Crude Oil Gains

European equities are trading on a positive note on the back of news that Spain will sign memorandum of understanding for its planned banking rescue package somewhere around 21st June and European Union summit scheduled on 28th June. Asian markets ended on a negative note and US stock futures are trading in green.

India’s industrial output increased marginally by 0.1 percent in April as against a previous decline of 3.5 percent in March. Manufacturing sector which contributes over 75 percent of the index grew by 0.1 percent in April from previous rise of 5.7 percent in April 2011. 

Capital goods output declined by 16.3 percent in April 2012 compared to rise of 6.6 percent in the same period last year. Mining output contracted by 3.1 percent in April with respect to growth of 1.6 percent in the same month last year. Power generation grew at a slow pace of 4.6 percent in April 2012 when compared to 6.5 percent in April last year. Spot gold prices declined around 0.3 percent in today’s trading session. 

Additionally, weakness in the US Dollar Index (DX) cushioned further fall in prices. The yellow metal touched an intra-day low of $1586/oz and hovered around $1591/oz until 4:30pm IST today. In the Indian markets prices declined by 0.1 percent and was trading around Rs.29,725/10 gm today. However, depreciation of the Indian rupee cushioned a further fall in prices. 

Taking cues from a fall in gold prices coupled with mixed performance in the base metals complex, Spot silver prices declined by 0.1 percent today. However, weakness in the DX prevented further fall in silver prices. The white metal touched an intra-day low of $28.34/oz and was trading around $28.51/oz today. On the MCX, Silver July contract declined by 0.2 percent and hovered around Rs.54,613/kg until 4:30pm IST today. Copper, the leader of the base metals pack traded on a flat note on the LME and LME copper inventories increased by around 2 percent today.

Nymex crude oil prices declined around 0.3 percent today on the back of expectations of increase in OPEC production coupled with ease in supply concerns from Iran after US exempt sanctions of Iranian crude imports. However, expectations of decline in US crude oil inventories coupled with weakness in the DX will cushion fall in oil prices. American Petroleum Institute (API) is scheduled to release its weekly inventories today and US crude oil inventories are expected to decline by 1.5 million barrels for the week ending on 8th June 2012.

Given the uncertain macroeconomic scenario, we expect precious metals and base metals to trade on a mixed note today. Although market sentiments have revived on hopes of stimulus measures, we feel that sharp rise in prices will be capped on account of long-term concerns associated with the European economic crisis. 

Oil prices are expected to trade with a negative bias on account of recent indications by the OPEC that production would increase. But a sharp downside in prices would be cushioned on the back of expected decline in API crude oil inventories.