Commodities surge on Fed’s Move

COMMODITY WRAP

Commodity prices shot up in sync with the rally across asset classes after the US Federal Reserve said that it would keep interest rates near zero levels until 2014 and hinted at a further economic stimulus. The dollar lost value and precious metals rallied. Gold has gained over 9% in January . Any price correction would be a good entry point given expectations of a strong rally. Base metals gained the most in four weeks as investors bet the expected liquidity would push prices higher in coming months. Copper & tin were the biggest gainers. 

    WHEAT 
Wheat prices could not remain unaffected from the speculative buying on back of the Fed-induced stimulus. The Fed moves are likely to further weaken the US dollar — making American exports attractive. The US is a leading exporter of wheat. Hence, it was natural for speculators to buy into the commodity. According to US data, exporters sold 6,18,700 metric tonnes of wheat during the week ended January 19 — the highest quantity since September. Russia, a rival exporter, may impose a tax to limit exports if shipments exceed 24-25 million tonnes. The proposed move also strengthened bullish sentiment in the US wheat futures.

Import duty up: Gold, silver jewels get dearer

New Delhi: Gold and silver jewellery are all set to cost more with the government increasing the import duty on precious metals from Tuesday. 

    The customs duty on gold has been fixed at 2% instead of Rs 300 per 10 gram. Silver will attract 6% duty, instead of a specific duty of Rs 1,500 a kg earlier. Based on Tuesday's price, this will translate into customs duty of Rs 550/10 gram and Rs 3,163 for silver. What's 
more, the levy will rise if prices of the metals go up. The import duty structure for platinum has also been changed. 
    Branded jewellery makers say they will be forced to hike prices by 1% to 3%. While a minor raise is unlikely to result in the postponement of purchase decisions, it will help the government generate around Rs 600 crore additional revenue at a time when it is grappling with a tight fiscal condition. Continued uncertainty in the global economy and poor stock market returns are prompting people to bet on gold which is seen to be a safe haven in tough times. 
Heavy Metals 

• Customs duty on gold fixed at 2% from the earlier 300/10gm 

• Silver to attract 6% duty against 1,500/kg, duty on platinum too revised 

• The hike will make branded jewellery costlier by 1-3% 

• Government will add about 600cr to its kitty with people betting big on gold'Gold duty hike will have minimal impact' 
New Delhi: Jewellery makers say the hike in import duty of gold may not deter people from buying the yellow metal. The rising demand for gold is one of the main reasons for its price crossing the Rs 29,000 per 10 gram mark recently although it has retreated since then. On Tuesday, gold closed at Rs 27,925/10 gram in Delhi. 
    "The higher cost will be passed on to the end-consumer. It will not affect the profitability of retailers," Gitanjali Export CEO Sanjeev Agarwal said. Orra CEO Vijay Jain said, "Gold prices have doubled in the last three years, but the demand is reasonable. The impact of an increase in customs duty will be minimal and in the short term." "We saw good demand for gold until last October. But November and December have been a little weak," said MMTC director (marketing) Ved Prakash. 
    The impact on silver is, however, expected to be more pronounced. "The dynamics are a little different. But there will be no impact on investment demand," said Gnansekar Thiagrajan, director at advisory firm Commtrendz Research.

COMMODITY WRAP Gold, Silver and Crude Rise on Iran Fears

Commodities like gold, silver and crude oil were impacted by the geo-political risk involving sanctions on Iran aimed to curb its nuclear programme and the continuing European sovereign debt risk. These factors have caused the three commodities to soar. Except for these main commodities, other commodities have logged mixed price movement. Among agri commodities, cotton, palm oil and soybean gained while wheat, rubber and soy oil dropped. Among the base metals, while tin and aluminium gained, copper, nickel and lead have dropped marginally.      SILVER  Precious metals posted the biggest gains among commodities in the first trading week of the year as investor appetite for gold and silver as safe havens started to rise again. Silver rose more than 5%, its biggest rise in over two months as eurozone worries resurfaced after the holiday break coupled with geopolitical concerns. After trading at a high of $35 per ounce in mid-2011, the price of silver corrected sharply to around $27 per ounce levels. Given its inverse relation with the US dollar, the price of silver is not expected to move up significantly from the current levels if the dollar remains firm.

Food inflation turns -ve, RBI may cut rates

New Delhi: Food inflation turned negative for the first time in nearly six years in late December as prices of vegetables, potato, onion and some cereals fell sharply, prompting analysts to say the data provided headroom for the Reserve Bank of India (RBI) to cut interest rates and support growth. 

    Data released by the commerce and industry ministry on Thursday showed food inflation, as measured by the wholesale price index, fell by 3.36%—sharply lower than the previous week's 0.42%. It stood at 20.84% in the same year-ago period. 
    Finance minister Pranab Mukherjee said there was substantial improvement in the food inflation situation. "Food inflation has turned negative for the first time in the recent memory," he told reporters. Food inflation fell due to better supplies
New Delhi: Plunging to negative figures for the first time in six years, Thursday's data for food inflation showed vegetable prices fell by 50.22% yearon-year while potato prices declined an annual 34.01%. Onion prices which had shot up last year fell by 73.74% yearon-year. Wheat prices declined an annual 3.41%. 
    But price of pulses firmed up an annual 13.85% during the week under review. 
    C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said he expects the overall inflation to ease below 7% by end-March.Policymakers have been wrong-footed several times in the past two years while predicting the inflation trend. 
    "We have to wait for December inflation figures to see if the non-food manufacturing numbers have also followed the same path. The December numbers will indicate when and how RBI will act," he told reporters. 
    "The environment appears to be in favour of the Reserve Bank reversing its monetary policy stance," he said. 
    Economists said the decline in food inflation was largely due to a statistical base effect but also showed that supplies had improved significantly.