Scotiabank foresees dramatic rise in Zinc and Nickel prices

As per the latest analyst report from Scotiabank, the cyclical recovery in base metal sector is likely to result in dramatic rise in zinc and nickel prices over the next two years.

The prices of both these metals has witnessed steady rise during this year, the report noted. The zinc prices have already appreciated by nearly 17% YTD. During past month alone, the prices rose by nearly 11%. Meantime, nickel prices have rallied nearly 37% so far this year. The prices have moved to $8.64 per pound from $6.31 per pound at the start of the year.

The Scotiabank report states that both zinc and nickel are positioned well for a drastic rise, as they are already in or near to supply deficit situation. The world demand and supply balance for refined zinc will turn into deficit in 2014. World Nickel market is also most likely to shift into deficit in 2015.

Zinc prices need to elevate itself to at least $1.13 to trigger new mine development. But only higher prices of the metal could ensure ample supplies to meet the demand. The report states that the metal prices are likely to hit $1.60 towards the end of this decade.

For nickel, the report predicts the price at $10.75 in 2015. The prices are likely to rise further to $12 in the next year. The Indonesian ban on ore exports will keep the supplies tight. As a result, the prices are unlikely to drop in the next two years. The situation may see a change during late-2016 when new Indonesian facilities are expected to come online, Scotiabank noted.

Rusal to keep production volumes low despite high aluminum prices

 Russian-UC Rusal- the world’s largest aluminum company has announced to keep its production below capacities during the rest of the year, despite rising aluminum prices. The company plans to restrict its cumulative aluminum output to 1.8 million mt during July-December period this year. The mills will run at less than 80% of their capacities, Rusal announced.

The company expects aluminum prices to remain positive in the second half of the year. The premiums are also likely to improve. However, Rusal notes that world aluminum producers are seen unwilling to boost production due to several cost factors including power tariff hikes, labour issues and raw material costs. The company plans to persist with the cost-effective production controls. It had implemented a series of production cuts at high cost smelters during the first half of 2014.

The company announced that it will stay away from restarting idled capacities or expanding current facilities. The launch of Boguchansky smelter too is delayed, the company stated.

According to data, primary aluminum ingot, billet, slab and foundry alloys production by Rusal during H1 2014 had totaled 1.7 million mt, down almost 11% when compared with the corresponding six-month period in 2013. The company estimates the full year production for 2014 to reach 3.5 million mt, down nearly 9% when compared with the annual production of 3.5 million mt in 2013.

Aluminum Warehousing Antitrust Suits Dismissed by Judge

Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Glencore Plc (GLEN)and other firms won dismissal of lawsuits accusing them of restricting aluminum supplies in a conspiracy to drive up prices.

U.S. District Judge Katherine B. Forrest today threw out the antitrust claims by buyers of aluminum and aluminum products, finding they hadn’t shown the defendants acted together to increase prices.

The complaints filed by the aluminum purchasers showed that “this was an unintended consequence of rational profit maximizing behavior rather than the product of conspiratorial design,” Forrest said in her written opinion.

Forrest also ruled that a group of commercial and consumer end-users of aluminum lacked the legal standing to make their antitrust claims, saying they can’t refile them. She gave the other plaintiffs in the case permission to try to file new complaints.

Today’s ruling doesn’t affect a group of antitrust claims targeting alleged price-fixing in the gold and silver markets. In those cases, plaintiffs claim banks manipulated a benchmark used to set prices throughout the gold and silver markets.

Dozens of makers of porch screens, flashlights and other products that contain aluminum sued beginning in August 2013 over claims the metal was being hoarded in Detroit-area warehouses, triggering delays of as long as 16 months in filling orders. Forrest said today that price increases were the unintended result of traders and warehouses trying to maximize their own profits.

Forrest dismissed claims this week against the London Metal Exchange on the ground that it functions as an arm of the U.K. government and is protected by sovereign immunity.

bloomberg.com

Nifty August Series Expiry view

• Nifty  has done nothing from past 6 trading session and closing in range of 7875-7936. Series of Dojis around new high suggesting market participants are confused on next move.Also we have rising wedge forming on daily chart and most of market participants looking to see 8000 on Index . Will market oblige ?

• Nifty Future Aug Open Interest Volume is at 88.5 lakh with liquidation of 16  lakh suggesting long liquidation and 42 lakh got rollovered to September series.VIX being very low suggests bulls are still overconfident and every dip is getting bought into.
  

• Total Future & Option trading volume was   at 2.83  lakh core with total contract traded at 2.2  lakh. PCR @1.02

• 8000  CE  OI at 1.04 Core  suggesting wall of resistance , 7800 CE  liquidated 5.3 lakh  suggesting bears cutting down positions  . 7900 CE liquidated 6.7 lakh suggesting bulls are making support on 7900 . FII’s bought 7.8 K CE longs and 21.7 K  CE were shorted  by   them. FII are shorting 7900/7800 CE, so is this an indication of expiry below 7900 ?
  

• 7900 PE OI@ 59.5 lakhs so strong base @ 7900 .FII’s bought 8.7  K contract  PE longs and 5.2 K shorted PE were covered  by them.

• FII’s bought 290  cores in Equity and DII bought 237 cores in cash segment.INR closed at 60.43.FII’s have bought 3.3 K cores and DII’s

• Nifty Futures Trend Deciding level is 7934 (For Intraday Traders). NF Trend Changer Level (Positional Traders) 7778 and BNF Trend Changer Level (Positional Traders) 15340 .

Buy above 7950 Tgt 7963,7980 and 8000 (Nifty Spot Levels)

Sell below 7933 Tgt 7919, 7902 and 7880 (Nifty Spot Levels)

Upper End of Expiry:7988      Lower End of Expiry:7879

Forget Geopolitical De-Escalation - Here's The Real Reason Why Oil Is Tumbling

As with  every other asset-class in the world now, fundamentals have taken a very distant back-seat to both liquidity (flow) and positioning (technicals) as traders are increasingly (in one way or another) on the same side of the same trade. Mainstream media will proclaim US energy "independence", US sanctions 'winning' over Putin, or US airstrikes 'calming' down Middle East uncertainty; but the real reason oil is plunging is... the biggest mass liquidation of speculative longs in recorded 30 year history over the last few weeks...

Obviously speculators remain massively - unprecedentedly long oil futures still...

MCX-Lead (₹136.9): BUY

The price of the metal lead, which finds its major usage in batteries, has risen sharply since May. The lead futures contract traded on the Multi Commodity Exchange (MCX) has surged 10 per cent from ₹123/kg in May to ₹137 now.

According to the data from the International Lead and Zinc Study Group (ILZSG), the market for lead ran into a deficit in 2013 for the first time in the last few years. The deficit is expected to widen in 2014 to 50,000 tonnes from a deficit of 1,000 tonnes in the previous year. Slow-down in mine production, increase in demand and widening deficit could limit any fall in the lead price and keep the current up trend intact. This provides a good opportunity for both the short- and medium-term traders to go long in the MCX-lead futures contract.

Short-term view: The short-term outlook is bullish. The fall from the high of ₹140.75 recorded on August 5 found support at ₹133.5, the 38.2 per cent Fibonacci retracement level. The contract has reversed higher from this level thereby reversing the downtrend. Resistance is at ₹139. A strong break above this level can take the contract higher to ₹142.

Traders with a short-term perspective can initiate fresh long position now. Stop-loss can be placed at ₹134 for the target of ₹141.

Immediate support for the contract is at ₹135 and then the key short-term support is at ₹133.5. The outlook will turn bearish only on a strong break below ₹133.5. Such a break can take the contract lower to ₹130 in the short-term.

Medium-term view: The medium-term outlook is also bullish for the MCX-lead futures contract. The recent rally since June has decisively reversed the strong downtrend that was in place since the August 2013 high of ₹155.4. Also this reversal has happened upon forming a double bottom reversal pattern. The neckline support of this pattern is at ₹130. As long as the contract trades above this level, a rally to ₹148 looks likely in the medium-term.

Traders with a medium-term perspective can hold the long position with a wide stop-loss at ₹129 for the target of ₹147. Intermediate declines to ₹134 and ₹130 if seen can be considered for accumulating more long positions.

The medium-term outlook will turn bearish if MCX lead futures contract declines below ₹130. The ensuing target will be ₹120.

Business Line

Aluminum Trades Near 18-Month High as U.S. Outlook Improves

Aluminum traded near an 18-month high on speculation demand is rising amid signs a recovery is gathering pace in the U.S. and before data forecast to show the country’s economy expanded for the second quarter.

The metal in London was little changed after rising 1 percent yesterday. The U.S. economy grew 3.9 percent in the three months through June, according to a Bloomberg survey of economists before government data tomorrow. Orders for goods meant to last at least three years climbed by a record 22.6 percent in July, the Commerce Department said yesterday. Consumer confidence unexpectedly rose in August to the highest level in almost seven years, a separate index showed.

Aluminum for delivery in three months on the London Metal Exchange was at $2,084 a metric ton, up 0.1 percent, at 8:38 a.m. in Hong Kong. It closed at $2,083 yesterday, the highest since February 2013. Also on the LME, nickel fell while copper was little changed. Lead, zinc and tin price unchanged .

Russia's Rusal back in black as aluminium market moves into deficit

* Q2 recurring net profit climbs to $129 mln

* Core earnings jump 26 pct but miss forecasts

* Rusal sees aluminium market moving into deficit

* Rusal shares up 73 pct this year (Adds CEO comments)

MELBOURNE, Aug 27 (Reuters) - Russia's United Company Rusal Plc returned to profit in the three months to June for the first time in five quarters due to higher aluminium prices, cost cuts and smelter closures, and forecast further gains.

The aluminium giant, which last week completed a restructuring of $5.15 billion in debt and has no payments due until January 2016, said it expects its margins and profits to improve in the second half of the year.

"In the first half of 2014, we witnessed some important trends which signaled that the global aluminium industry has turned a corner," Chief Executive Oleg Deripaska said in a statement on Wednesday.

Aluminium prices have jumped 24 percent off a 4-1/2-year low hit in February. Global demand increased by 6 percent to 27 million tonnes in the first half of this year, while producers outside China have cut output, Deripaska said.

Premiums that aluminium buyers pay over London Metal Exchange prices have also increased to record levels this year, with Rusal seeking a premium of $460 per tonne for shipments to Japan in the December quarter, three sources told Reuters ahead of quarterly price talks.  

For the September quarter, Japanese buyers mostly agreed to pay a record premium of $400-408 a tonne PREM-ALUM-JP.

Rusal's recurring net profit, defined as adjusted net profit plus the company's share of Norilsk Nickel's earnings, jumped to $129 million for the June quarter, up from a loss of $203 million a year earlier.

Core earnings jumped 26 percent to $220 million, but that missed analysts' forecasts for earnings before interest, tax, depreciation and amortisation (EBITDA) of $255 million, according to a Reuters poll of six brokers.

Rusal, which has a primary listing in Hong Kong and secondary listings in Paris and Moscow, said it expected EBITDA to top $600 million in the second half of this year at current aluminium prices.

"Looking at the rest of the year, we expect the LME spot aluminium price to remain around its current level and view potential upside for physical premiums," Deripaska said.

Rusal said it expected a global supply deficit of 1.5 million tonnes in the global aluminium market this year.

Rusal's shares have surged 73 percent this year on the back of the rebound in aluminium prices and a sharp jump in nickel prices. Rusal owns a 28 percent stake in Russia's Norilsk Nickel.

Weekly Economic Data for the week 25-Aug-14 to 29-Aug-14

India Top Court Rules Mines Illegal in Setback to Billionaires

India’s highest court ruled giving away coal mines to companies since 1993 was illegal, spurring concern mining permits may be canceled and deprive power and steel projects of fuel.

The policy of allocating 218 mines for captive use to companies including Hindalco Industries Ltd. and Jindal Steel & Power Ltd. without auctioning them didn’t follow transparent norms, a three-judge bench headed by Supreme Court Chief Justice R.M. Lodha said yesterday, after a report by the nation’s main investigating agency. The court on Sept. 1 will hear arguments regarding termination of the mining licenses.

Annulment of mining rights may lead to fuel shortages at several factories, including power plants, cement and steel mills, undermining Prime Minister Narendra Modi’s aim to revive economic growth and curb blackouts in Asia’s third-biggest economy. Inadequate coal output has prompted companies to seek supplies overseas, as state producer Coal India Ltd. battles slow land acquisition and government approvals.

“The ruling has brought in uncertainty and if the situation prolongs, it could severely strain coal supplies to customers,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai. “I would expect the government to act on this matter in urgency and allow companies to retain coal mines on the basis of merit.”

Shares Tumble

Shares of metal and power producers tumbled in Mumbai yesterday after the ruling. New Delhi-based Jindal Steel plunged 14 percent to 253.45 rupees, the lowest close since May 13. Hindalco, the nation’s largest aluminum producer led by billionaire Kumar Mangalam Birla, dropped 9.7 percent to 164.85 rupees, the biggest decline in almost five years.

The policy of giving away coal mines to non-state companies caused a loss of 1.86 trillion rupees ($31 billion) to the state exchequer, the federal auditor said in August 2012. The Comptroller and Auditor General’s report on the estimated losses added to a series of corruption charges on the Manmohan Singh- led United Progressive Alliance government and prompted the Supreme Court to order an investigation by the federal investigative agency.

“We see significant downside for metal and power stocks if allocations are ultimately canceled,” said R.K. Gupta, managing director of New Delhi-based Taurus Asset Management Co., which oversees about $686 million. “This has the potential to hurt the India growth story as power companies are reeling under huge coal shortage.”

Bringing Clarity

The ruling may bring clarity in the mines allocation process and will be beneficial to the industry in the long term, Coal Minister Piyush Goyal told reporters in New Delhi yesterday. “I hope the work to deliver coal to increase generation and reduce imports will be expedited and the court’s judgment will go a long way in helping us achieve our goal of providing 24x7 power to people.”

Jindal Steel is evaluating the impact of the ruling on the company and wouldn’t comment further, it said in an e-mailed statement. Chanakya Chaudhary, Tata Steel spokesman, declined to comment on the ruling saying he hadn’t yet seen the court order. Pragnya Ram, spokesman at Hindalco, didn’t respond to an e-mail seeking comments.

“The news is negative for Jindal Steel and Hindalco,” Kunal Agrawal, analyst at BNP Paribas Securities (Asia) Ltd., said by phone from Hong Kong yesterday. “Hindalco was expecting to get a final clearance and start mining at Mahan coal mine and for Jindal Steel it’s Gare Palma coal mine.”

Thermal Coal

Jindal Steel is also counting on a final permit for its Utkal B1 coal block that will fuel its steel project in eastern state of Odisha, the first in the country to use gas produced from thermal coal to run a steel mill. Essar Power, controlled by billionaire brothers Shashi and Ravikant Ruia, and Hindalco have invested about $3.8 billion to build power plants and an aluminum smelter to be fueled by coal from Mahan coal mines.

A panel of retired judges may be formed to probe the case, the court said in a 163-page ruling.

To increase coal production, the federal government in 1993 started allocating mines to companies for their own use. The discretionary process of allocation would later come under criticism, forcing the government to amend the mining laws and adopt a policy of auctioning coal mines. The nation has yet to auction its first coal mine.

The Coal Ministry allocated 218 coal blocks between 1993 and 2011, of which it has canceled 80 permits for failure to meet production milestones, according to the ministry.

www.bloomberg.com

Gold should be $1,400/oz: Global Investors's Holmes

Frank Holmes, CEO and CIO of US Global Investors, a company known for its focus on the natural resources sector, says he believes the price of gold should be $1,400 per ounce, according to an interview on Ceo.ca.

Holmes mentions several reasons for his bullish stance on the yellow metal, including economic concerns in Europe and China that trigger stimulus.

"We saw, three weeks ago, Germany go to a negative real interest rates. Well, when that happens all of a sudden you start seeing gold rise in euro terms," Holmes tells interviewer Shannon Nelson.

"I think that is important to witness, that we could see gold, based on negative real interest rates in the US, the CPI numbers this week based on the fear in Europe, gold should be trading around $1,400 an ounce," he says.

Holmes discusses a number of other subjects in the podcast, from what it takes to get him to invest to his favorite websites, and gives entrepreneurs some advice.

To listen to the podcast, click here 

Gold and Oil on the Verge of Something Big

Gold and Oil on the Verge of Something Big - Hero's Rarely Win

Everyone has been calling for a bottoming Gold the last year. But the fact is that gold and gold stocks are still clearly in a bear market. Just look at the 200 day moving averages. The previous trends were down and prices have been moving sideways for the past year.

A lot of newsletter and analysts are calling a bottom. Technically it's just a consolidation pattern. Consolidation patterns are a continuation pattern, meaning if the previous trend was down, which it was from 2011 till now, the odds favor price will continue lower after this consolidation.

If this consolidation does happen to be the bottom then we can classify it as a stage I base. Gold and gold stocks will start a new bull market, but price needs to break to the upside of this consolidation pattern. Until it breaks to the upside, it is still in a down trend.

Gold topped out over three years ago. And I am in no rush to try to pick a bottom and be a hero here. I'm just going to continue waiting on the sidelines until price confirms either a new bull market has started or for price to breakdown and we get another leg lower.

Oil Outlook

Taking a look at the big picture of crude oil the chart looks bearish. It too has been trading in a range since 2011 and the price is nearing the apex of a consolidation pattern.

It's important to know that a pennant formation which is what crude oil has formed are the most predictable when price breaks out of the pattern within the first 1/3rd of the formation.

The longer price consolidates and gets squeezed into the narrowing apex of the pennant pattern, the more unreliable. The trend breakout will be, and it becomes at best a 50/50 bet.

Crude oil's previous trend was up, but it's been consolidating for such a long time that price is now squeezed into the apex. This negates that bias for the previous trend to hold true so we have no idea which why it will breakout but when it does expect an explosive move.

A breakdown in crude oil will send price to the $70 or $75 per barrel range, and that will hammer on the Canadian dollar also. I can see $1 USD being equivalent to $1.20 Canadian in a year.

My Gold and Oil Conclusion

Looking at the US dollar, it has been rising partly due to the euro falling. This strong dollar will put a downward pressure on commodities overall.

Gold and oil have not been that exciting for investors since 2011 when they topped out, but both are setting up for massive moves that should last month, if not year or more. Once these new trends emerge expect to see them in the headline news every hour.

It does not matter which way these commodities breakout of the consolidation patterns. With the dollar continuing to rise and the bearish chart patterns for both gold and oil there is a good chance much lower prices are ahead.

This will catch most investor's off guard. It's human nature to try to predict tops and bottoms in the market. But this is why most investors get caught on the wrong side of the market. The market always has a way of catching the majority of people on the wrong side of a position.

I am happily sitting in cash with some of my investment capital waiting for gold and oil to breakout of these large patterns. I would not be surprised if we see $900 gold, gold stocks like the gold bugs index $HUI to be at $150, and $70 per barrel for crude oil. I am not saying this is what I want, but you should be mentally prepared so you can get back into cash position and so you can take advantage of falling prices with me.

Big money will be made on the next price movements in these commodities. Whether we have to go long the market or short sell the market. Either way, we can make money. So don't be a hero and try to pick a top or bottom, just wait for confirmed breakout then invest with the trend.

By Chris Vermeulen

China’s Reaction: America Is A “Disgusting Thief Spying Over His Neighbor’s Fence”

China’s Reaction: America Is A "Disgusting Thief Spying Over His Neighbor’s Fence"

Only hours ago the US government announced that a Chinese fighter jet had intercepted an American military patrol plane over international waters east of China’s Hainan Island.

A Pentagon spokesman called China’s actions “unsafe and unprofessional”, and blasted such unprovoked aggression.

There was no mention as to why a US surveillance plane was just off the Chinese coast to begin with. They’re just playing the victim… and rather loudly at that.

Needless to say, the Chinese government has a slightly different story. I asked one of our Sovereign Man team members in mainland China to translate the following article from Sina News.

The first part of the article praises the pilot’s skill and boldness, as well as the efficiency and superiority of Chinese aviation technology.

The Jian-11B fighter, in fact, is 100% Chinese. There is no foreign engine or major component.

As for the rest of the article– I present it below with only one comment– it should be obvious to anyone paying attention that the US is no longer the world’s dominant superpower. It’s certainly obvious to the Chinese.

——–
From Sina News

Stop thief: China rejects the U.S. government calling our aircraft “dangerously close”

Sure enough, it is the American government who stamps its foot first after a similar event.

First the famous anti-China military scholar Bill Gertz played his “danger close” speech for the Washington Free Beacon.

And then the Pentagon also followed and said that it was a “dangerous intercept”. The White House called it “deeply worrying provocation”.

Adm. John Kirby, the Defense Department spokesman, said Washington protested to the Chinese military through diplomatic channels, and called the maneuvers “unsafe and unprofessional.”

Deputy National Security Adviser Ben Rhodes said it was “obviously a deeply concerning provocation and we have communicated directly to the Chinese government our objection to this type of action.”

Such remarks are laughable. As we all know, the United States is the world’s largest hegemonic force and biggest rogue country.

Their various reconnaissance aircraft have been wandering around foreign airspace for decades and watching the military secrets of other countries like a disgusting thief spying over his neighbor’s fence.

However, when the neighbor comes back with a big stick, the thief will turn tail and run away, blaming the neighbor.

When you show people weakness, they will bully you. When you show people strength, they will respect you.

We [the newspaper] believe the Chinese Air Force and Naval aviation should maintain a high level of vigilence and morale in southeast coastal region to prevent the further US action.

America has lost face and does not want to show the world they are sick. They have been lording over other countries for so long, and they will never let it go after they eat this loss.

Sourced from Simon Black of Sovereign Man

World refined copper market ended in 69,000 mt deficit in May '14: ICSG

According to figures released by the International Copper Study Group (ICSG), the global refined copper market ended in an apparent deficit of 69,000 mt in May this year. The figures are exclusive of adjustment for changes in Chinese bonded stocks.

The refined copper balance after adjustment to changes in Chinese bonded stocks ended in a deficit of 305,000 mt during Jan - May ‘14, compared to deficit of 65,000 mt during the corresponding five-month period in 2013. The Chinese bonded stocks increased by nearly 160,000 mt during the initial five-month period of the year.

The data also indicates that the refined copper balance for the initial five-month period in 2014 ended in a deficit of 466,000 mt. This is when compared with the production surplus reported during the same period last year, ICSG noted.

The Copper body also notes that the Chinese apparent copper demand increased by 29% during the period. The net copper imports by the country surged 65% year-on-year during Jan-May ’14. The strong demand growth in China elevated the world apparent copper usage by 15.5% during the five-month period when compared with 2013.

The global production of refined copper increased 7% in the initial five months of 2014. During this period, primary production saw growth of 6.5%, whereas secondary production was up by 7%. The ICSG data points out that world mine production is estimated to have increased by 5% during this period.

NIFTY FUTURE HOURLY CHART

THE RALLY STARTED FROM 7560 TO 7940.
IMPORTANT LEVEL 7940 7883 & 7835 (Blue Line)
LEVELS ON CHARTS ARE OF FIBONACCI RETRACEMENT LEVEL

All you want to know about Jackson Hole Summit

The Jackson Hole Summit is set to take place starting Thursday to Saturday this week, and traders are already buzzing about its potential impact on the financial markets. Allow me to break down what the event is all about, why it matters, and what might happen.

What is the Jackson Hole Summit all about?

While the symposium is held in a ski resort in Jackson Hole, the world’s financial leaders and central bankers won’t just be cruising down the icy slopes for three days. Instead, they are set to discuss current economic issues, potential action steps, and their global outlook… over steaming mugs of hot cocoa around the fireplace inside a log cabin.

This annual forum has been held since 1978 and has been sponsored by the Federal Reserve Bank of Kansas.

Why is this event important?

The fact that this economic event is held only once a year makes it a pretty big deal. Apart from that, this forum is also an opportunity for economic decision-makers to coordinate their plans for monetary and fiscal policies. With that, any announcements made during this summit tend to have a strong impact on longer-term Financial market price action.

Just to give you an idea of how this event rocked the markets in the past, remember that former Fed head Bernanke first dropped hints on QE2 back in 2010′s Jackson Hole Summit before actually implementing this policy change a few months later. Last year, the main topic discussed during the symposium was the Fed’s taper plans.

What could happen this time?

For the upcoming summit, market participants are expecting to hear clearer clues from Fed Chairperson Yellen on when the U.S. central bank might start hiking interest rates. After all, the U.S. economy has been showing consistent progress across most economic sectors yet the FOMC appeared hesitant to disclose any details on potential policy tightening. Many are expecting to hear dovish or cautious remarks from the Fed head, which could lead to dollar weakness and a surge in risk-taking.

Aside from that, the slowdown in employment trends might also be a hot topic. As seen in some major economies like the U.K., headline figures haven’t been so bad yet underlying components such as average earnings have reflected a concerning degree of economic slack.

Geopolitical tensions could also stir up a lot of conversation among economic heads, as the conflicts in Russia, Gaza, and Iraq could pose a huge threat to global growth. In line with this, leaders could also assess the potential repercussions of the sanctions imposed on Russia and by Russia.

As I’ve mentioned earlier, this event could set the tone for longer-term price action so make sure you keep your eyes and ears peeled for any important announcements. Do watch out for potential gaps if you’re keeping trades open over the weekend though!

Gold & Silver The Big Picture

With gold again on the decline, it's time to take a look and focus on gold's big picture.

This eases a lot of doubt, especially when companies like Goldman Sachs are bearish on commodities. We'll focus on silver and palladium too.

GOLD: Still looking good

Looking at gold's big picture since 1968, you'll see what we mean.

Chart 1A shows that gold's decline of the last few years looks small in the big picture, within the mega uptrending channel since 1968.

Note that gold has had two major bull markets, in the 1970s and in the 2000s.

The major rise in the 70s didn't break its bull market red uptrend until several years after the peak in 1980.

The bull market red uptrend since 2001, however, is still intact. On a big picture basis, it'll be important to see if this trend holds.

That is, as long as gold stays above the lows of last year, at $1210, this trend will stay solid.

And according to gold's leading long term indicator (B), it's extreme low area...

Since these low areas tend to coincide with bottoms in the gold price, this tells us that gold is totally bombed out and the lows of last year are unlikely to be broken.

All things considered, it increasingly looks like 2015 could be the year of a strong change to the upside.

SILVER: Big Picture is bullish

Silver is similar to gold (see Chart 2). It's still in a major uptrend since 2002 within an almost 50 year uptrending channel. And its leading indicator is similar to gold's.

Silver tends to outperform gold when both are bullish. So once gold starts rising in earnest, silver could then make up for lost time.

Correlation between Indian and global comexes

How global trends influence domestic futures & local scenarios reflect in international markets

 

As India opened up to global trade in the last two decades amid an increasingly inter-dependent world, global factors and global prices have had a strong effect on Indian commodity prices. India is a major importer of precious metals, energy, base metals. India’s dependence on imports results in Indian commodity prices at a par with global commodity rates with the rupee and import duty changes causing divergence between local and global prices. India has emerged as a major exporter of wheat and rice in the last few years leading to influence of global grain prices and USD-INR changes on Indian grain prices.

Commodity futures traded on Indian exchanges, which are international in nature, are impacted by price changes in key overseas futures contracts. Futures contract of commodities which have little footprint outside India viz. spices, pulses, etc. are mainly driven by domestic supply and demand factors along with local speculative activities. However, energy, precious and base metals have strong correlation with overseas futures. Even soyabean, cotton, palm oil, sugar, etc. are strongly influenced by global futures price movements.

Currency volatility

Futures of metals and energy commodities viz crude oil, gold, silver, copper, zinc which are actively traded on the domestic bourses show strong correlation with their corresponding global benchmark futures contracts. MCX crude oil futures have a strong correlation of 98.70 per cent with Nymex crude oil futures, with it seldom falling below 97 per cent. Changes in correlation are due to USD-INR volatility. A sharp weakness in the rupee, similar to events in 2013, leads to higher domestic prices even as global prices could be stagnant. Very high correlation values are also seen in MCX gold and MCX silver futures with respect to their benchmark Comex contracts. The 100 days correlation of MCX gold futures with Comex gold futures is near 70 per cent.

For a considerable time in the past, the correlation was high as 99 per cent. However, the volatility in the rupee along with distortion due to increase in import duty of gold and silver contributed to lower correlation in recent times. Relatively newer contracts – gold hedge and silver hedge futures contracts by NCDEX – provide a better alternative to Indian traders who want better correlation with global contracts as prices of these hedge contracts are exclusive of Customs duty, local sales tax/VAT/Octroi and any other charges or levies. Thus these contracts will not be affected by changes in Indian import duty or other duties.

Market hours

MCX copper futures have near 98.20 per cent correlation with LME copper prices. Indian metals and energy futures also have a higher intraday correlation with global futures since Indian commodity markets are active till 11:30 pm at night, coinciding with active overseas market hours. MCX zinc, aluminium, lead and nickel futures contracts also show a very strong correlation with the corresponding benchmark contracts on the LME.

Futures contract in agricultural commodities also exhibit better correlation with international benchmark contracts; however, it is not as strong as it is with metals and energy commodities. NCDEX soyabean futures currently have 100-day correlation at 91.60 per cent which is at the high end of the range.

Deviation in prices

In the last 10 years, this value has oscillated between the range of -40 and 96 per cent. Since soyabeans in India are not freely traded due to high import duty structure, domestic prices are not directly influenced by the global benchmark CBOT soyabean prices. However, India is a large importer of soya oil and is also an important Asian exporter of soyameal. Global changes in soya oil and soyameal prices influence Indian soya oil and meal prices which, in turn, have an effect over domestic prices. NCDEX soya oil futures have 100-day correlation of 89.30 per cent. Similarly, 100-day correlation between MCX crude palm oil futures and BMD crude palm oil futures are at 94.30 per cent indicating very strong correlation. Here too the volatility in the rupee, import duty changes along with domestic supply and demand scenario play a role in deviation between Indian and overseas prices.

Indian wheat futures, currently, have a poor 100-day correlation at -14.60 per cent with CME wheat futures due to rupee volatility, export permits/demand, local supply and demand factors, MSP, etc. This value has been as high as 85 per cent in 2012. Similarly, Indian corn futures currently have a poor 100 day correlation at -24.60 per cent with CBOT corn futures. However, the broad trend in international prices does have an impact on prices of domestic agriculture commodities.

India is the second largest cotton producer and also the second largest cotton exporter in the world. Changes in the in Indian cotton demand and supply scenario affects international prices and vice-versa. The 100-day correlation between ICE cotton and MCX cotton is at 87.80 per cent.

Aluminum Falls From Six-Month High on China PMI Data

Aluminum in London retreated from a six-month high as industrial metals declined after worse-than-expected manufacturing data from China, the biggest consumer.

The contract for delivery in three months on the London Metal Exchange dropped as much as 0.5 percent to $2,066 a metric ton and was at $2,072 at 10:20 a.m. in Hong Kong. Prices closed at $2,076 yesterday, the highest since Feb. 20. Copper fell 0.2 percent to $6,995 a ton.

A gauge of Chinese manufacturing from HSBC Holdings Plc and Markit Economics showed a preliminary August reading of 50.3, trailing all 22 estimates in a Bloomberg News survey of economists. The measure dropped from 51.7 in July and was the lowest since May. The index followed data last week that showed a slump in credit growth and slowdown in industrial output.

Signs of a slowing economy in China “will dampen sentiment,” said Helen Lau, a Hong Kong-based analyst at UOB Kay Hian Ltd. “This will affect the demand for metals.”

Copper for December delivery fell 0.5 percent to $3.1825 a pound in New York, while the metal for delivery in October advanced 1.2 percent to 50,130 yuan ($8,155) a ton in Shanghai, rising for a fourth day.

On the LME, lead dropped for the first time in five days. Nickel, zinc and tin also fell.

Zinc and Aluminum Rise on Signs U.S. Demand Will Quicken

Aluminum and zinc rose in London as a jump in home building fueled speculation that demand will accelerate in the U.S., the world’s second-biggest consumer of industrial metals.

Housing starts surged in July to the highest in eight months, U.S. government data showed today. Yesterday, a private report showed confidence among home builders rose in August to the highest in seven months. Zinc goes into household products including brass plumbing fixtures, while aluminum is used in window frames and other building components.

“Two days in a row of decent housing and building numbers is pretty good, especially for a base metal like zinc, which is used in galvanized steel,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “That’s a big part of demand.”

Zinc for delivery in three months climbed 0.9 percent to $2,302 a metric ton at 5:50 p.m. on the London Metal Exchange. That’s the biggest increase since Aug. 12.

Aluminum for three-month delivery gained 1 percent to $2,039 a ton. The metal also advanced 1 percent yesterday.

The fee to borrow aluminum for a day in London reached $9 a ton, the highest since December 2012. The construction industry accounts for 20 percent of world usage, according to United Co. Rusal, the largest producer.

Aluminum for immediate delivery closed yesterday at a $1.25-a-ton discount to the three-month contract, the smallest gap since Dec. 17, 2012. Stockpiles monitored by the LME are at the lowest since September 2012.