Gold, Silver, Copper, Crude oil and Natural Gas. Technical Analysis MCX.

Gold (Rs 28,365)

The MCX gold contract fell sharply by 3.8 per cent last week. The contract has closed below the significant 200-day moving average which is currently at Rs 28,515. The short-term outlook remains weak and the contract can fall further to test its next important support at Rs 27,500. There is a high probability for this support to hold, and the contract can see a temporary relief rally to Rs 29,500. But, if Rs 27,500 is broken, then the contract can decline further to Rs 25,500. For the medium-term, Rs 29,500-30,500 is a strong resistance zone. However, a fall to Rs 25,500-25,000 looks more likely.

Silver (Rs 46,891)

The MCX silver contract fell 2.8 per cent last week. The immediate outlook is bearish, and the contract can fall to Rs 45,500-44,500. After finding support at this level, the contract can see a corrective rally to Rs 48,500. Short-term resistances are at Rs 48,500 and Rs 50,000. The medium-term outlook is also bearish with strong resistance in the Rs 52,000-53,000 region and the contract can fall to Rs 41,500-40,500 in the medium-term.

Copper (Rs 445.7)

As predicted in this column last week, the MCX copper contract has broken its Rs 450-470 range on the downside, thereby giving way for a further fall. Any rise from current levels could be restricted at the support-turned-resistance level of Rs 450. On the downside, the contract can fall to Rs 440-430 in the short-term. The medium-term outlook is bearish with strong resistance in the Rs 460-470 region. Medium-term support is in the range between Rs 400 and Rs 390 which can be tested. Only a strong break above Rs 470 will turn the outlook positive.

Crude Oil (Rs 6207)

The MCX crude oil contract is down for the sixth consecutive week and has closed lower by 2.8 per cent for the week. Last week’s prediction in this column that the important support at Rs 6,300 would hold, has turned wrong. Below Rs 6,300, the contract looks vulnerable to falls to Rs 5,786 and Rs 5855 which are 200-day moving average and 61.8 per cent Fibonacci retracement support levels respectively. Only a strong rise above Rs 6,300 can avoid this fall and can take the contract up to Rs 6,600. The medium-term outlook has turned bearish with the break below Rs 6,300. Important resistance is at Rs 6,600 which has to be breached for the outlook to turn positive. However, below Rs 6,600, a fall to Rs 5,400 looks possible in the medium-term.

Natural Gas (Rs 231)

The MCX natural gas contract has taken support from the 200-day moving average which is now near Rs 218 and has risen sharply by 6.8 per cent last week. The contract still has further scope on the upside and can rise to test the important and strong resistance at Rs 240. This resistance might not be broken easily and there is a high probability for the contract to come down from this level. This will take the contract lower to Rs 220-210. The medium-term outlook is bullish as the contract is trading in a bull channel for more than a year. The channel support is near Rs 200 which can limit the downside. A rise from this support will have the potential to touch Rs 260-270 on the upside.

New Rules For Investing In Gold India.

The Centre’s curbs on gold mean fewer investment options and lower liquidity. So, how does an investor get around this?

The price of 24-carat gold in the international market is $1320/ounce. In rupee terms this works out to Rs 25,727/10 gm. But did you know that you cannot buy gold today at anything less than Rs 30,000 per 10 gm? Gold in India is now at a 15 per cent premium to international prices. Just last year, you coughed up only a 2-3 per cent premium.One reason for this is the import duty hikes, which have pegged up duty on gold imports from 4 per cent in December last year to 10 per cent now. But the many restrictions on gold imports have also resulted in a severe short supply of gold in domestic markets, leading to a further ‘mark-up’ by suppliers. Since June, gold prices have rallied 20 per cent in India (helped partly by rupee depreciation). Gold has risen only 6 per cent in the international market.

The widening premium on Indian gold has not deterred shoppers at Zaveri Bazaar or T.Nagar, but it sure has hit investors. Units of gold-backed exchange traded funds are trading at a 5-6 per cent premium to their true worth — their net asset value (NAV) in the secondary market. Government moves barring sale of gold coins/bars by banks and tighter gold lending norms have also hit investors by way of fewer options and lower liquidity on gold investments.

Here are four ways in which gold markets have changed in the last one year — and how you could go about dealing with the change.

GOLD GETS COSTLIER

India imported 142.5 tonnes and 162 tonnes of gold in April and May, respectively, but later, as the government cracked down on gold imports by hiking import duty and imposing export obligations, the imports dwindled. In August it is estimated that less than five tonnes of gold came into the country. But as jewellery demand hasn’t moderated as much, this has set off a rally in domestic gold prices. From an average $5-6/ to an ounce, Indian buyers now shell out a premium of $40-45 an ounce on every bar of gold they buy. The premium in the physical markets has set off price increases in the ETF market too.

Gold ETFs in the country, which traditionally traded at par or at a discount to their NAVs, have recently moved to a premium. Goldman Sachs gold exchange traded scheme (gold BeES) — the largest gold backed exchange traded fund — is at a 5 per cent premium to its NAV now. Anyone who wants units of this fund will have to pay Rs 2,872 for each unit, though units will be credited at the NAV of Rs 2,737.5 only. The premium on ETF gold units could also be because the curbs on imports have halted creation of new gold units by ETFs. With only a limited supply of ETF units available to investors, the premium on these units has widened.

FEWER INVESTMENT OPTIONS

If buying domestic gold has become a more expensive proposition, investing in gold has become more difficult too, with shrinking options for those who fancy the yellow metal. Retail investors who used to buy coins or bars of certified purity from the banks or post offices can no longer do so. In May, the Reserve Bank of India banned banks from selling gold bars/coins. Following this India Post also discontinued sale of gold coins. As an offshoot of this, gold savings funds, once a popular option with investors, have stopped sales too. Reliance Gold Savings Fund — a fund investing in gold ETFs has — completely stopped sale of new units.

Even jewellers no longer prefer to retail gold in coin or bar form. Jewellers claim to have ‘voluntarily’ discontinued coin sales to help the government rein in the current account deficit (CAD). Of course, it also suits them to market more jewellery where margins are higher. With all this, buying gold ETFs directly from the exchanges is the only remaining avenue to invest in gold. Buying jewellery is an option that remains. But remember that it comes with hefty costs — making charges and wastage are likely to add on to the premium that you are already paying over global gold prices.

LESS LIQUIDITY

While quite a few investment options on gold have closed out, liquidating your existing holdings has become more difficult. Banks now are barred from lending against gold coins weighing more than 50 gs as well as gold ETF units and gold mutual funds. Already banks were not buying back the gold coins they sell; now they have stopped lending against them too.

Gone also are the days of five-minute gold loans from non-banking finance companies (NBFCs).

RBI regulations in September have prohibited these companies from extending gold loans without proof of ownership for any loans involving more than 20 gs of gold. There are also new caps on the value of jewels you will have to pledge as security and the prices at which these are valued. The new loan-to-value norms expressly bar NBFCs from lending more than 60 per cent of the market value of gold pledged with them. The pricing of this gold should also be at the average price of gold in the last one month.

CASH FOR GOLD

The new restrictions on gold imports have, however, opened up a couple of new options for those seeking to trade in their old gold. For one, the shortage of raw materials has pushed gold jewellers to come up with more schemes that incentivise people to trade in their old gold jewellery.

Exchanging jewellery for cash is a practice long discontinued by the industry but today such deals are being revived. Jewellers have started to offer higher rates (roughly Rs 50-100 per gm) on the old gold being exchanged.

However, this may not be entirely a bonus. Consumers need to check the ‘wastage’ percentage applied on the old jewellery, because jewellers normally inflate wastage charges when offering a higher per gm rate on old jewellery.

You can also monetise your old gold coins/jewellery by depositing your holdings with the gold deposit schemes of banks. The minimum maturity period for these deposits has been reduced from three years to six months by the Reserve Bank of India.

The deposit scheme now offered by SBI allows you to deposit physical gold in jewellery or coin form for a nominal interest payment with the bank.

When you make a deposit, the bank melts the jewellery, tests the purity of gold and then issues a deposit certificate which you hold till maturity.

Interest on this deposit is around 1 per cent per annum and will be calculated on the value of gold deposited by weight. At the end of the maturity period, your gold will be returned in bar form. The advantage with deposits is that you get income on your idle gold holdings. You are also saved the trouble of finding and paying steep rentals (Rs 1,000-45,000) depending on the size of the locker) to a bank for safekeeping of this gold. The deposited gold is also exempt from wealth tax.

But the flip side is that this scheme may only help really large holders of gold, as the minimum deposit requirement is 500 gm.

Turnover Of Commodity Exchanges Fell 25 Percent To Rs 65.68 Lakh Crore In First Six Months Of 2013-14 In India

The combined turnover of commodity exchanges fell 25 per cent to Rs 65.68 lakh crore in the first six months of 2013-14 due to a sharp decline in trading volume in most commodities.

According to the Forward Markets Commission, the turnover stood at Rs 87.62 lakh crore during April-September period of 2012-13 fiscal.

Maximum fall in business was seen in agriculture items, followed by bullion, metals and energy commodities.

Turnover from futures trading in agriculture items fell 37.16 per cent to Rs 7,47,102 crore during April-September this fiscal from Rs 11,88,870 crore in the same period last year, according to FMC data.

Similarly, turnover from bullion dropped 27 per cent to Rs 29.62 lakh crore from Rs 40.61 lakh crore, while the turnover from metals declined 24 per cent to Rs 12.20 lakh crore from Rs 16.09 lakh crore.

Turnover from energy commodities like crude oil too fell little over 14 per cent to Rs 16.27 lakh crore in the first six months of this fiscal compared with Rs 19.02 lakh crore in the year-ago period.

There are 21 commodity exchanges in the country, of which six of them operate at the national level. They include MCX, NCDEX, NMCE, UCEX, ACE and ICEX.

Aluminium Price Recovery Hinges On Global Revival.

A supply glut amid continued sluggishness in the global economy continues to depress prices of aluminium. The metal is currently trading at $1,836 a tonne on the London Metal Exchange.

Even production cuts by major global companies have failed to prop up aluminium prices, with a dip in automobile purchases primarily responsible for capping demand worldwide. Any recovery will hinge on an upswing in the global economy’s fortunes.

RISE AND FALL

Primary aluminium prices had touched an all-time high of $3,271.3 a tonne in November 2008, but crumbled to a five-year low of $1,251.8 a tonne by February 2009 as the global economic recession battered commodity prices.

Aluminium made a recovery in subsequent years, clawing its way back to 2,758.75/tonne in April 2011. But prices began to stagnate once again on demand concerns as the Euro Zone sunk deeper into an economic quagmire and the US growth engine struggled to break out of its inertia. Demand concerns have been further compounded by the slowdown in China. The metal has lost 34 per cent since that recent peak and is down 10 per cent this year so far.

In contrast, spot aluminium prices on the MCX have risen by 0.1 per cent in 2013 to Rs 111.90/kg. This can be primarily attributed to a sharp spike in aluminium prices in August, with the metal surging by 17.9 per cent during the course of the month to Rs 124.9/kg, its highest level since 2008. This can be attributed to an uptick in demand from the automobile sector, which has reported record passenger vehicle and two-wheeler sales in September.

Nevertheless, investors should view this burst as an anomaly, rather than a concrete direction for aluminium prices, especially since aluminium has lost 11.1 per cent since that five-year peak in just a matter of two months.

PRODUCTION CURTAILMENT

Aluminium smelters globally are expected to operate at 84 per cent capacity this year, with production pegged at 47.6 million tonnes against capacity of 56.9 mt a year.

This translates into greater curtailment of production than in 2012, when smelters operated at 86 per cent capacity. Production stood at about 46.2 mt in 2012, against operational capacities of 54 mt a year. In addition to primary aluminium, recycled metal accounts for around one-third of global consumption.

Demand is expected to rise to 49.4 mt this year, a 7 per cent growth compared with last year, according to a projection made by aluminium giant Alcoa. Most of the demand will come from China, the world’s biggest consumer, which is projected to witness 11 per cent growth in consumption to 23 mt, despite the slowdown.

At the same time, China is on its way to becoming self-sufficient in aluminium. In such a situation, it may limit itself to strategic imports of aluminium, thanks to massive capacities built at home. However, it will continue to rely on overseas suppliers for its bauxite requirement.

DOMESTIC DEMAND TO RISE

Among the other top aluminium consuming regions, Indian demand is expected to rise by 7 per cent to 3.8 mt this year. The country’s aluminium industry comprises four primary producers, namely Hindalco, Nalco, Balco and Vedanta Aluminium. The cumulative capacity of these firms amounts to around 1.6 mt.

Demand from Europe, on the other hand, is expected to decline by 1 per cent to 6.5 mt, even as consumption from North America is projected to rise by 4 per cent to 6.2 mt.

MCX Copper, Crude Oil, Natural Gas, Gold, Silver Technical Analysis

Gold (Rs 29,493)

The MCX gold contract has been range-bound between Rs 29,277 and Rs 30,850 over the last three weeks. A breakout on either side of this range will decide the direction for the near-term. A strong rise above Rs 30,850 can take the contract higher to Rs 32,500. On the other hand a break below Rs 29,277 can see the contract declining to Rs 28,500. Technically, the bias is bearish and Rs 28,500 can be tested in the coming days. The area around Rs 28,500 is a very critical medium-term support, which if broken, can take the contract further lower to Rs 25,000-24,500. Conversely, a bounce from Rs 28,500 can see a rise to Rs 30,000-31,000.

Silver (Rs 48,197)

The MCX silver contract remains weak and has closed 3 per cent lower for the week. Although the 200-week moving average support is at Rs 47,754, the overall outlook is weak and near-term downtrend remains intact. The contract can fall to Rs 45,500-44,500 in the near-term. Resistances are at Rs 48,500 and Rs 50,000, which can cap the upside if there is a rebound from the 200-week moving average support at Rs 47,754. The medium-term outlook is also bearish. A decline to Rs 41,500 is possible over this period. Strong resistance is in the Rs 52,000-53,000 region.

Copper (Rs 454)

The MCX copper contract has been ruling in the Rs 450-470 range for the third consecutive week. This week’s price action suggests that the contract can break the lower band of this trading range and fall to Rs 430 in the near-term. Failure to break below Rs 450 can take the contract higher to Rs 470, the upper end of the range. For the medium-term, Rs 430 will be a crucial level to watch. A break below Rs 430 can take the contract further lower to Rs 400-380. On the other hand, a bounce from Rs 430 can see a rally to Rs 470 initially and then to Rs 500-510.

Crude Oil (Rs 6386)

The MCX crude oil contract traded flat in a narrow range of Rs 6,340-6,480 last week. Immediate and significant support is at Rs 6,300 which can limit the downside. There is very little likelihood of the contract declining below the immediate support at Rs 6,300. There is a good chance of a bounce-back rally to Rs 6,600-6,700 in the near-term. The medium-term outlook is bullish while the contract remains above Rs 6,300. A strong bounce from the support at Rs 6,300 will have the potential to test Rs 7,000 or even Rs 7,500 on the upside. In case the contract breaks decisively below the immediate support at Rs 6,300, then the outlook will turn bearish for a fall to Rs 6,000 and lower.

Natural Gas (Rs 216)

The MCX natural gas contract fell sharply by 5 per cent last week. The immediate outlook is bearish and the contract can fall to Rs 200. Resistance is at Rs 230. However, the medium term outlook is bullish for the Natural Gas contract which is trading in a bull channel for more than a year. The channel support is near Rs 200 which might not be broken easily. There is a good chance of a fresh up-move beginning from the channel support at Rs 200 which can target Rs 260-270 on the upside.

Data for the week 05-Oct-13 to 11-Oct-13

Exp.:	Expected or Anticipated value calculated from the recent survey conducted.
Prior:	Represents the last actual for each indicator. In case there is a revision to the last actual, the prior column reflects the prior figure as revised.
Exp. change today:	Exp. - Prior
Avg. change of last 1 year:	Average Change in Actual data calculated for last 1 year.
Expected impact on price:	This indicator shows the effect of the anticipation of data on the prices of related country’s major indices. We have categorized it as below: Very Good Good Neutral Bad Very Bad
Actual:	Refers to the actual/latest figures after its release.

Data for the week 05-Oct-13 to 11-Oct-13

Date	Time (IST)	Country	Data	Exp.	Prior	Exp. chg today	Avg. chg of last 1 year	Exp. Impact on Price
07-12 Oct-2013	00-00	United States	Nonfarm Payrolls	180K	169K	11.00	43.00	Neutral
07-12 Oct-2013	06-00 PM	United States	Unemployment Rate	7.3%	7.3%	0.00%	0.13	Neutral
08-14 Oct-2013	00-00	United States	World Bank and International Monetary Fund Annual Meeting
08-Oct-2013	06:30 PM	United States	IMF Releases World Economic Outlook Chapters
08-Oct-2013	11-30 AM	Germany	Current Account n.s.a.	€13.0B	€14.3B	-1.30€	5.83	Neutral
08-Oct-2013	11-30 AM	Germany	Trade Balance s.a.	€15.0B	€16.1B	-1.10€	1.15	Neutral
08-Oct-2013	03-30 PM	Germany	Factory Orders s.a. (MoM)	1.0%	-2.7%	3.70%	3.85	Neutral
08-Oct-2013	06-00 PM	United States	Trade Balance	$-39.5B	$-39.1B	-0.40$	3.21	Neutral
09-Oct-2013	02-00 PM	United Kingdom	Industrial Production (MoM)	0.4%	0.0%	0.40%	1.75	Neutral
2013-10-09	06:30 PM	United States	IMF Releases Global Financial Stability Report Chapter
09-Oct-2013	08-00 PM	United States	EIA Crude Oil Stocks change		5.472M		3.45
2013-10-09	11:30 PM	United States	Fed Releases Minutes from Sept 17-18 FOMC Meeting
10-15 Oct-2013	00-00	India	Imports YoY	-0.70%			5.62
10-15 Oct-2013	00-00	China	Money Supply M2 YoY	14.00%	14.70%	-0.70%	0.59	Bad
10-15 Oct-2013	00:00	India	Exports YoY		13.00%		4.12
2013-10-10	03-30 PM	European Monetary Union	ECB's Draghi Speaks in Cambridge, Massachusetts
10-Oct-2013	04-30 PM	United Kingdom	BoE Interest Rate Decision	0.5%	0.5%	0.00%	0.00	Neutral
2013-10-10	04-30 PM	United Kingdom	BOE Monetary Policy Decision
10-Oct-2013	08-00 PM	United States	EIA Natural Gas Storage change		101B		33.60
10-Oct-2013	09-50 PM	European Monetary Union	ECB President Draghi's Speech
10-17 Oct-2013	11-30 PM	United States	Monthly Budget Statement		$-147.9B		131.52
11-Oct-2013	05-30 PM	India	Industrial Output		-2.6%		4.15
11-Oct-2013	06-00 PM	United States	Producer Price Index (MoM)	0.6%	1.4%	-0.80%	0.65	Bad
11-Oct-2013	06-00 PM	United States	Retail Sales (MoM)	0.0%	0.2%	-0.20%	0.63	Neutral
11-Oct-2013	07-25 PM	United States	Reuters/Michigan Consumer Sentiment Index	76	77.5	-1.50	3.26	Neutral

Gold-Silver ratio signals a bearish outlook.

One of the indicators used to gauge the direction of gold and silver prices is the gold-silver ratio. This ratio is obtained by dividing the price of gold an ounce by the price of silver an ounce. The value of this ratio gives the amount of silver required to get one ounce of gold. For example if the gold-silver ratio is 10 then it means 10 ounce of silver is required to get one ounce of gold.

INTERPRETING THE RATIO

In general, both gold and silver move in the same direction. The percentage of decline in gold is typically lower than that of silver, and thus the ratio could increase faster due to larger price difference between the two metals. Hence the movement of the gold-silver ratio is inverse to the movement in gold and silver prices. That is, when price of gold and silver decline, this ratio increases and vice versa. When bullion prices decline, the gold-silver ratio increases faster due to heightened volatility in declines causing larger price moves. On the other hand, lower volatility in rallies could lead to lower difference between gold and silver prices, resulting in slower decline in the ratio.

Historical study of the movement of this ratio from a trough to a peak and vice versa since 1973 shows that, 60 per cent of the time, a sharp rise in the ratio is caused by a sharp fall in the price of gold and silver. Similarly, 67 per cent of the time a sharp rise in the gold and silver price has dragged the ratio lower.

The gold-silver ratio bottomed near 31 in April 2011. The ratio is on the up move since then and is currently at 61.35, which is just above its important resistance level at 61. As long as the ratio remains above 61, there is a high probability of a rise to 70-72. It is interesting to note that the movement of the gold-silver ratio from July 2009 till now is almost following the same trajectory of the ratio from December 1996 to June 2003. Hence, the ratio currently tracking the same path, can revisit 80 levels in the coming months..

Now, what does this mean for the gold and silver prices? Gold, after recovering from the low of $1,180 has failed to rise past its resistance at $1,450 and is declining once again. Similarly, silver is coming down now after testing its important resistance at $25. This pull-back keeps the overall outlook bearish for both gold and silver prices. If gold falls to $1,100-1,080 levels and silver falls to $15 levels, then the gold silver ratio will move up to the initial target zone of 70-72.