OUTLOOK FOR GOLD, SILVER, CRUDE, COPPER

Gold gains on back of weak US data

After remaining stead at the benchmark level of USD 1,200 per ounce, gold suffered a downfall in the past few days. However, on the back of weak US data, the precious metal has regained some of its position and is trading steadily between USD 1,993 – USD 1,995 per ounce. The US had released sluggish data yesterday – jobless claim, home sales and manufacturing – all posting less than expected figures. This lead to investors looking at gold as safe haven, helping the metal gain 0.6 per cent as compared to the previous session. Though, gold may see further hike in prices going forward, one also needs to focus on the Federal Reserve’s announcement for interest rate hike next week.

Silver may trade at USD 16.50 in 2015

Silver is expected to maintain an average price of USD 16.50 per ounce in the spot market this year, as per a report by Mitsubishi UFJ. The metal might see further weakening in the second quarter of this year, but may recover in the second half of the year, with possible rise in industrial demand. However, in case gold gets impacted due to the impending hike in interest rates in the US, silver may also feel the effect in prices. Fall in prices may provide opportunities for the physical market. Investing in the metal in the short-term may not provide much gain.

HOW TO TRADE IN COMMODITY FUTURES

You as a trader should determine your limits for profit and loss. A dealer should keep limits for the amount and quantity of commodities; both sold and bought. 

If the Futures prices for two months are close to the day-to-day price, it is the best time to buy. 
If the profit is sure to exceed even one rupee per kilo, sell. If there is a constant loss, do away with the deal even if it is in loss, without waiting much. You can regain the loss later by selling or buying.  A trader who can make the right decisions would make more profit from the Futures market than he would perhaps make from the stock market or real estate deals. While stock market demands at least 50% of the whole value, dealer needs to spend only 6-15 percent as margin money in Futures Market.  If the trader’s judgment is good, he can make more money faster because prices tend to change more quickly than real estate or stock prices. On the other hand, bad trading judgment can ruin you.  Futures are highly leveraged investments. The trader puts up a small fraction of the value of the underlying contract (usually 10 percent of less) as margin. The actual value of the contract is only exchanged on those rare occasions when delivery takes place. Moreover the commodity futures investor is not charged interest on the difference between the margin and the full contract value.  Most commodity markets are very broad and liquid. Transactions can be completed quickly, lowering the risk of adverse market moves between the time of the decision to trade and the trade’s execution.  There is no clear demarcation regarding the deals. Practically anyone can do any kind of dealings. However, one should take intelligent decisions by evaluating the ups and downs of commodity in the spot market. Normally, as the term period increases Futures value may increase. But this need not happen at all times. As the period decreases the difference in the price in the spot market will decrease too. On the 15th of every month, the ready market price and Futures price should be the same.  Hedgers and Speculators  There are two basic categories of futures participants--hedgers and speculators.  In general, hedgers use futures for protection against adverse future price movements in the underlying cash commodity. The rationale of hedging is based upon the demonstrated tendency of cash prices and futures values to move in tandem.  Hedgers are very often business houses, exporters, traders, farmers or individuals, who at one point or another deal in the underlying cash commodity.  Take, for instance, a major food processor, who trade in pepper. If pepper prices go up he must pay the farmer or pepper dealer more. For protection against higher pepper prices, the processor can “hedge” his risk exposure by buying enough pepper futures contracts to cover the amount of pepper he expects to buy. Since cash and futures prices do tend to move in tandem, the futures position will profit if peppers prices rise enough to offset cash pepper losses.  Speculators are independent traders and investors. Independent traders, also called “locals” trade for their own accounts. For speculators, futures have important advantages over other investments, as we have explained elsewhere.