Gold Target $1300 mark, Crude Oil aiming to extend recovery :: Edelweiss, report

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Commodity Weekly Perspective

• The focus last week was SNB`s sudden withdrawal of the EURCHF floor of 1.2 and further reduction of interest rates. This move has greatly intensified speculations that the ECB would announce extension of asset purchases in the meeting next week.
• The commodity most affected SNB`s decision was gold which rallied more than +5%. The fact that the SNB changed in mind for not defending the currency peg in less than a month has hurt it credibility and directed safe-haven seekers to gold, instead.
• We expect gold`s strength was mainly driven by SNB`s decision and a renewed decline in US long term real yields. These factors should unlikely carry forward to coming months.
• The outlook for gold remains dovish as the Fed is going to begin this year, a move that would strengthen the US dollar, while a global low inflation environment would reduce the yellow metal`s demand as an inflation hedge.
• MCX Gold has been very good performer last week, but prices are trading near crucial resistance of Rs 27700-27800. Gold is expected to see some pause and consolidation before moving higher. Silver has been very good performer last week, but prices are trading near crucial resistance of Rs 39100-200. Silver is expected to see some pause and consolidation before moving higher.
• Crude oil recovered modestly last week, following the sharp selloff over the past months. Traders` shift to sell copper also helped support crude. The -60% price decline since June 2014 has forced producers to cut their budgets, postpone or cancel new projects. It indicated that, "for the most part the supply effects will not be felt immediately, but further down the road, through project delays and faster decline rates".
• The IEA revised lower its non-OPEC supply growth estimate, for the first time since last July, by -350K bpd a day with half the cut coming from Colombian output. It stated that the moderation in non-OPEC output would rebalance the oversupplied global markets in 2H15 and, thus, support prices. The agency added that "a price recovery, barring any major disruption, may not be imminent, but signs are mounting that the tide will turn. MCX Crude oil price is finally rebounding from its downtrend channel. But prices need to sustain above Rs 3100 to continue its price recovery
• This week will likely see some volatile trading in metals given a number of event risk coming up. Investors will have their eyes on the European Central Bank (ECB) meeting this Thursday as well as the World Economic Conference that will kick start on the same day. Market participants are now expecting the ECB to carry out QE at this week’s policy meeting.
• Anything else would come as a big disappointment for market participants. But even if the ECB does announce quantitative easing, there is still a question mark over its potential size. With the consequences of the Swiss National Bank’s (SNB) move in mind, there is a risk of very volatile trading behavior
• For the metals market, participants will likely keep an eye out for data out of China Tomorrow morning, with the 2014 GDP a key figure that will give hints of how the economy has performed. The data could cause some stir in the base metals market, given that China is the biggest consumer of copper and the GDP numbers could provide a demand gauge. MCX Copper has well rebounded from its low. If prices sustain above Rs 359 (23.6%) it could retrace to Rs 370 this week.

https://www.edelweiss.in/research/Gold-Target-1300-mark,-Crude-Oil-aiming-to-extend-recovery/10005444.html