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Indian Gold Imports Increase ahead of Diwali

|Includes: ACH, BAL, BALC, COPX, CU, FCX, LIT, ETFS Physical Swiss Gold Trust ETF (SGOL)

Commodities are trading mixed and near flat for the most part today, with some mild strength in the dollar keeping pressure on as the November Federal Open Market Committee (FOMC) meeting draws closer.

The precious metals complex is continuing to show its strong correlation with moves in the greenback today, with gold pulling back following a mild bounce yesterday. According to the Bombay Bullion Association, gold imports in India have jumped to over 40 tonnes in October, suggesting imports for the full year could reach 340 tonnes. This comes as jewellery demand remains strong in the world’s number one gold importer, despite record prices.

October’s high levels also come amid a normal seasonal drive in physical demand, ahead of the country’s religious festivals, with Diwali beginning at the start of November. Data from the Chinese customs authority showed that China was a net importer of silver in September, importing 3,993 tonnes of the metal in the first 9 months of the year; 25% higher than the year before.

On the technical front, any upward momentum in spot gold is still managing to find a cap at the 21-day moving average (today at $1,340/oz), with chances of further pullbacks still possible while below here. Similarly a bearish cross of the 5 and 21-DMA yesterday shows further potential for selling in the near-term, although the daily stochastics have now triggered a mid-level buy signal. The 21_DMA will remain key to near-term moves in the yellow metal, with a break and close above all but negating the recent bearish bias, while a strong pullback could indicate weakness is on the cards, before the next expected support from the June high around $1,265/oz.

WTI Nymex crude is back below the $83/bbl level today, weighed by the strengthening dollar and having lost some mild support on the news that Hurricane Richard will no longer pose a threat to Mexico’s oil production. China raised their fuel prices today by 3%, for the first time in 7 months. This is likely to bring further discrepancies between China’s crude product prices and global prices, with the new levels expect to increase refinery output, eventually filtering through to the global markets and putting pressure on prices. At the same time the move is likely to bring increased crude demand from China, and offer support to crude prices themselves.

Attention will be turning to today’s American Petroleum Institute (NYSEMKT:API) weekly inventory data after the bell today,watching for possible indications about tomorrows more extensive US Department of Energy (DoE) report, due for release by the Energy Information Administration (NYSEMKT:EIA) at the normal time of 1030EST. General estimate suggest the report will show a 1.5 million barrels (mbls) build in crude stocks, a 1mbls fall in middle distillates, with gasoline likely to see only mild moves either way. The report could also bring the first indication of what impact, if any, the French refinery strikes have had on US product stocks.

China’s largest aluminium producer, Aluminium Corp, have said they have shut down 10% of their total production capacity due to the energy saving measures imposed by the government; a decrease in capacity of 400,000 tonnes. in order to counterbalance the fall in aluminium supply brought about by their energy saving measure, the Chinese government have said they will sell 96,000 tonnes of the metal from their state reserves (which total 590,000 tonnes) at the beginning of November. 

Looking at copper, reports are coming through that following the metals push to a 27 month high on the Shanghai exchange last week, and the 2-year high on the London metal Exchange (LME), Chinese consumers are said to be cutting their demand for imported copper and are now drawing on their own stocks of the metal. If this is sustained in coming weeks, it may offer some counterbalance to the global short fall that has been driving copper prices, although the underlying landscape for the industry will remain the same.

Weather has been driving prices in the agricultural sector so far this week, with a cold spell in China, the worlds largest cotton producer, bring about support for the textile, while a hail storm in Texas, brought about further weather-driven support for cotton amid fears the crop may be impaired.

That said, more than half of the US cotton crop has already been harvested, with the quality of the plants this year already above average levels according to the US Department of Agriculture (USDA). With this, cotton is outperforming other softs and agriculturals in today’s session, with the stronger dollar still being felt in the sector.

Disclosure: no position