Precious Metals Edge Higher On Euro Debt Concerns

Weakness in the US dollar coupled with upbeat market sentiments due to decreasing worries over Euro Zone debt tensions helped spot gold prices to trade higher by almost 1 percent in yesterday’s trading session.

Additionally, rise in crude oil prices also fueled the inflation-led demand for gold on Thursday. The yellow metal touched an intra-day high of $1703/oz and ended at the level of $1700/oz yesterday.

MCX Gold April contract rose slightly around 0.3 percent on Thursday as sharp upside was not witnessed due to Rupee appreciation. The yellow metal touched an intra-day high of Rs28,028/10 gms and ended at Rs27,972/10 gms yesterday.

Silver

Taking cues from rise in gold prices coupled with a weaker dollar, spot silver prices traded higher by 1.5 percent on Thursday. Silver being an industrial metal also took cues from upside in base metals. The white metal hit an intra-day high of $34.14/oz and closed at the level of $33.9/oz yesterday.

On the MCX, Silver May contract rose around 0.5 percent on Thursday and touched an intra-day high of Rs59,165/kg . However, appreciation in the Indian currency capped sharp gains on the domestic bourses.

Crude oil trades up on global supply concerns

Nymex crude oil prices increased by 0.4 percent in yesterday’s trading session, taking cues from supply worries from Iran coupled with easing concerns over Greece’s debt worries. Additionally, a weaker dollar also acted as a positive factor for the commodity.

Oil prices touched an intra-day high of $107.20/bbl and closed at $106.6/bbl yesterday. On the MCX, prices increased around 0.2 percent and closed at Rs.5356/bbl after touching an intra-day high of Rs.5385/bbl on Thursday.

Natural Gas

Nymex natural gas prices declined around 0.5 percent on Thursday on the back of less than expected decline in US natural gas inventories coupled with a forecast of mild weather. However, further downside in prices was restricted on account of a weaker dollar.

Prices touched an intra-day low of $2.235/mmbtu and closed at $2.294/mmbtu yesterday. On the MCX, prices declined by 2.8 percent and closed at Rs.114/mmbtu after touching an intra-day low of Rs.113.3/mmbtu on Thursday.

EIA Inventories

US Energy Information Administration (EIA) released its weekly inventories yesterday and US natural gas inventory has fallen less than expected by 80 billion cubic feet (bcf) and stood at 2.433 trillion cubic feet for the week ending on 2nd March 2012.

Base Metals Settle Higher On Global Economic Concerns

Except nickel, all other base metals traded higher on the LME in yesterday’s trading session on the back of easing tensions with respect to Greece debt worries after the bondholders agreed to swap their holdings of the country’s debt for new securities.

Additionally, weakness in the US dollar coupled with upbeat sentiments in the global markets also acted as a positive factor for the metal prices on Thursday.

However, appreciation in the Indian Rupee (INR) capped sharp gains on the domestic bourses in yesterday’s trading g session. The Indian currency appreciated around 0.4 percent and closed its trading session at the level of 50.07 on Thursday.

Zinc

Zinc was the top performer on Thursday, as the metal prices rose sharply by 2 percent on the LME and around 1.4 percent on the MCX. A weaker dollar and upbeat market sentiments supported upside in metal prices yesterday.

Zinc hit an intra-day high of $2053/tonne and closed its trading session at the level of $2050/tonne on Thursday. On the MCX, Zinc March contract touched an intra-day high of Rs102.80/kg and ended at Rs 102.60/kg yesterday.

Gold Reacts To Greek Debt Deal Completion: Sharps Pixley

As of Asia open on 9 March, Comex April gold futures is trading around $1,700, bouncing 2.2% from the recent trough of $1,663. Similarly, S&P rebounded 1.9%, Euro, 1.2%, oil, 2.2% from the lows on 6 or 7 March. Correlations among all asset classes are familiarly high because securities and commodities are reacting to 2 major events: first, the outcome of the Greek PSI; second, central banks' money-printing actions.

At the time of this writing, the Greek government has just announced that 85.8% of private investors have accepted the Greek debt deal while total participation would approach 95.7% using the CACs. Given the near-term correlation and improved sentiment, higher equity prices will likely lift up prices of all commodities including gold.

The ECB on Thursday decided to keep interest rate at 1 percent so did the Bank of England which left interest rate at a record low of 0.5 percent. In mid-February, the Bank of Japan engaged in QE2 by keeping interest rate close to zero and pledged to step up asset purchase until the goal of 1% inflation is reached. This week, the Fed may also contemplate a different version of asset purchase program. JP Morgan estimated that the major central banks' (US, UK, EU, Japan & Swiss) balance sheet as a percentage of GDP is currently about 27% compared to about 11% in 2007. In the long run higher inflation becomes inevitable due to all the central banks' actions.

Coming back to gold, Barclay's analyst Suki Cooper believed that the macro picture and investor flows are still positive for gold although dollar's uptick and risk reduction can dampen gold's strength from time to time. The key is whether or not the physical gold market especially the demand from Asia would continue to act as a support to gold prices as it did last Thursday and whether the long-term money would bulge to volatility and little sign of inflation in the short run.