Commodity Futures : Margins hiked, Commodities ease

Anand James,  Chief Analyst, Geojit Comtrade Ltd.

Highlights

–          Gold & Silver slip ahead of Diwali

–          Pulses collapse, Spices easy. Natural Rubber sideways

–          Metals choppy, Oil plummet

–          Weak Rupee help imports

Gold and Silver had one of their worst months in recent times, as cash starved investors sought lock in their gains and cash out of the safe haven assets that have been giving steady returns over the last few years, even as other asset classes across the board, were plummeting. CME’s margin hike in Comex Gold, Silver and Copper also added momentum to the fall, while possibility of resolution to the Eurozone debt crisis also eroded the yellow metal’s safe haven appeal, as Germany’s lower voted in favour of the expanded bailout package. However, Germany is still against enlarging the EFSF, and the US debt crisis is also unlikely to see a swift end. Hence safe haven appeal is likely to remain alive, supporting prices. Meanwhile, India is also gearing up for the festive buying season as Danteras, Diwali fall this month. Sharp weakness in the Indian rupee was also seen hurting imports, pushing Indian gold prices higher.

Metals and Oil remained largely choppy, as well as downcast, plagued by demand worries. They also closed the month on an even deeper bearish note, as traders closed out of long positions fearing volatility amid thin volumes, since China would be closed in the first week of October on account of China’s National Day holiday. Chinese factory activity had picked up in September for a second month in a row, while export orders also strengthened, giving a glimmer of hope that the world’s second largest economy would support the metal’s demand.

Pulses were seen gaining sharply through the month in anticipation of the festive demand. However, by the end of the month, Chana and Guarseed collapsed, unable to find sustained buying at such high prices. Meanwhile, imposition of special margin by NCDEX on Chana futures, accelerated the fall, which saw nearly 18% being wiped off in a couple of days. The sharpness of the fall also prompted the India Pulses and Grain association to allege that the exchange margin hike was leaked.

Spices took supports as their export competitiveness improved with a sharp weakness in the Indian rupee. However, most of them eased by the end of the month, unable to find buyers at high prices. Weak sentiments over the economy reflected in a flagging Sensex, also dampened sentiments. Natural Rubber prices also were less directional, amidst concerns that the raw material for tyres might take a hit, as the global economy reels under the weight of debt crisis. Peak tapping season is also about to kick start soon, putting a cap on the price rise.