You can expect commodity markets to show increasing rates of volatility in June due to uncertainties created by various market factors. First and foremost on the list is the Euro crisis, where the major European economies are under tremendous pressure to act soon.  Secondly, the uncertain nature of the United State’s central bank policies, where analysts have given the probability of Quantitative easing anywhere from 60-100 percent, will increase uncertainty. Both these factors will play a lead role in determining commodity demand. However, problems with two of the most important emerging economies, China and India, have recently come into international focus.

 India has posted one of the lowest first quarter GDP growth rates for 2012. Growth stood at only 5.3%, which was not only well below predictions, but very disappointing compared to 9.2% for the same period last year. The Indian Prime Minster, Manmohan Singh, has stated that the loss in growth is mainly attributed to the Euro Zone crisis as well as the rising value of USD which has hurt importers. Unlike China, which is manufacturing heavy, the Indian economy is more consumer driven, and therefore more vulnerable to currency fluctuations. Many analysts have concluded that the problem is actually internal; lack of economic reforms and political deadlock.

 Unlike India, analyzing the real state of the Chinese economy is difficult because most data is government controlled. The recent official Purchaser’s Manufacturing Index (PMI) and HSBC PMI have both shown the industrial sector slowing down. The recent cut 25 basis point cut in benchmark lending suggests that economic growth has slowed down significantly. China is the manufacturing hub of the world and the slowdown suggests that demand for consumer goods have fallen across the globe.

All these events are leading to increased uncertainties in the markets. If the situation worsens, prices of commodities will most likely fall. However, a positive response from governments and central banks to increase demand would help the price of commodities. Soft commodities such as Agro products will probably be the least affected, while Industrial commodities would be affected the most. A deteriorating situation across all markets will probably favor gold, but the recent volatility in the gold market suggests that it may not necessarily be a safe haven.