Commodity Trade Mantra

Gold traders Bullish – Bearish on INR on the week’s developments.

Gold

Gold traders Bullish

Bullion buying accelerated after a report showed U.S.economic growth cooled in the first quarter as businesses cut back on investment. Some safe-haven buying also supported gold after a credit downgrade ofSpain’s sovereign debt by Standard & Poor’s. Silver also bounced back on hectic speculative demand.

Gold traders are more bullish after central banks expanded their bullion reserves and hedge funds increased bets on a rally for the first time in three weeks. Mexico, Russia and Turkey added about 44.8 metric tonnes valued at $2.39 (Rs 125.69) billion to reserves in March, IMF data show. Fund managers raised their so-called net-long positions by 2.5% in the week ended April 17, according to the Commodity Futures Trading Commission. Gold’s four-day rise was boosted by option-related buying and after Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. central bank would not hesitate to launch another round of bond purchases to boost growth if necessary. U.K.fell into its first double- dip recession since the 1970s, data showed April 25, while the IMF predicts the 17-nation euro region will contract.

The S&P’s GSCI gauge of 24 raw materials climbed 5.6% as the MSCI All-Country World Index (MXWD) of equities added 9.5%. Treasuries gained less than 0.1%, a Bank of America index shows. Options traders are also bullish, with the most widely held contract on futures traded on the Comex conferring the right to buy at $2,200 by July, 33% above prices now. The seven most popular options give owners the right to buy at prices ranging from $1,800 to $2,300, bourse data show. The net-long position is still 56% below the peak reached in August. That provides “ample room” for new long positions. Investors own 2,389.6 tonnes in bullion-backed exchange-traded products, within 0.9% of the record reached on March 13. Next week’s release of a slew of economic data on the U.S. labor market and the beginning of the latter half of corporate earnings will be keenly watched to see if they are enough to allow S&P 500 stocks to break above the recent trading range.

INR posted a fourth consecutive week of falls after ending flat on Friday, as investors add more bearish bets on a local currency that is pricing in deep uncertainties about the country’s economic and fiscal challenges.  Those challenges were most recently highlighted by S&P, which downgraded India’s outlook to negative this week, in the latest negative development impacting the currency. The weakening Indian Rupee has led to talk of potential intervention from the central bank, but traders believe that is unlikely given the country’s modest foreign exchange reserves and tight liquidity conditions. A Reuters poll on Thursday showed market players had nearly doubled short Indian rupee bets, largest since November.  The Indian Rupee has become particularly volatile in the last two months driven ostensibly by both fundamentals and sentiments. Trade data available shows that while exports continued to be buoyant; the trade balance did sharpen along the way. FII inflows which rebounded in December and continued to flow in large numbers in January and February have slowed down substantially and are in the negative zone in April. In fact, they climbed from $ 3.9 billion in December to $5.4 billion and $7.4 billion receptively in January and February. In March they were just $41 million and turned negative in April. The slowdown can be attributed mainly to a certain modicum of uncertainty relating to some of the budgetary proposals as well as the relative good news in the USA where the recovery is well on the way which has diverted funds to an extent.

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