Gold Weakens, Base Metals Climb on Weak Dollar

European Banks received 530 billion Euros at the European Central Bank's (ECB) second-ever offering of 3-year funding today. This 3-year loan is ECB’s step in order to fight the Euro Zone crisis. This will lead to rise in risk appetite in the global markets today. European stocks also traded higher in today’s trading session.

India’s Gross Domestic Product (GDP) increased at slowest pace in three years by 6.1 percent for October to December 2011 as compared to 6.9 percent in July to September quarter. Manufacturing rose by 0.4 percent, farm output climbed by 2.7 percent and construction increased at 7.2 percent in last quarter of 2011.

Spot gold prices traded slightly lower by 0.1 percent today and touched an intra-day low of $1780/oz. However, sharp decline was cushioned on account of a weaker dollar. On the MCX, the yellow metal declined around 0.2 percent and was trading at Rs 28,819/10 gm till 4.30 pm IST today.

Spot silver prices traded higher by 0.6 percent in today’s trading session mainly taking cues from weakness in the US dollar coupled with upside in base metals pack. The white metal touched an intraday high of $37.34/oz and was hovering around $37.09/oz till 4.30 pm IST today. On the MCX, silver prices rose around 0.5 percent and touched an intra-day high of Rs61,412/kg till 4.30 pm IST today.

Upbeat sentiments in the global markets coupled with weakness in the US dollar helped base metals complex to trade higher on the LME today. Copper, the leader of the base metals pack, rose around 1 percent on the LME and by 0.5 percent on the MCX till 4.30 pm IST today.

Nymex crude oil prices increased by 0.6 percent today on the back of supply concerns from Iran coupled with a weaker dollar. Additionally, rise in risk appetite in the markets also acted as a positive factor for the commodity. Oil prices touched an intra-day high of $107.43/bbl and was hovering above $107/bbl till 4:30pm IST today.

The US Energy Department (EIA) is scheduled to release it weekly inventories report today and crude oil inventories are expected to rise by 1.1 million barrels for the week ending on 24th February 2012.

Outlook

Latest step of ECB to pump huge amount of money in the European banks will lead to rise in risk appetite in the global markets and on account of this we expect the US dollar to remain weak today.

Precious metals and base metals are expected to trade higher today on account of a weaker dollar coupled with upbeat sentiments in the global markets.

We expect crude oil prices to trade with a positive bias today on account of supply worries from Iran and weakness in the US dollar.

However, expected rise in US crude oil inventories may cap sharp gains in oil prices.