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'Commodities may remain directionless amid increasing uncertainty'

Amid uncertainty about various issues, commodities are also struggling. Gold rescaled $1800 per troy ounce on safe haven buying and lower bond yields but continued to remain pressurized by Fed's monetary tightening expectations.

July 11, 2021 / 01:23 PM IST

After weeks and weeks of confident trade in financial markets amid hopes of economic recovery, uncertainty has seeped in and it has affected all asset classes including commodities.

In the last few months, progress on the vaccination front kept market players hopeful that economic activity may normalize soon. However, market players are now questioning economic optimism owing to numerous challenges.

Virus concerns have resurfaced as spread of the Delta variant has caused some countries to tighten restrictions while World Health Organization has warned about rushed reopening of economies.

Inflation concerns have been hovering for the last few weeks with rising commodity prices and jump in inflation numbers across the globe. Financial markets got a fresh jolt this week as fallout of OPEC talks led to sharp volatility in crude oil prices.

Meanwhile, mixed economic data points towards uneven economic recovery. Adding to it, concerns about Chinese demand have risen amid some disappointing economic numbers and increasing efforts to curb raw material prices. China's crackdown on big tech firms has also sapped risk sentiment while market players became further cautious as authorities pointed towards monetary easing.

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Central banks have further fueled uncertainty with their divergent view. FOMC minutes this week failed to give much clarity however some officials stated that criteria to start tapering of bond purchases may be met earlier-than-expected. On the other hand, European Central Bank raised its inflation target to 2 percent and stated that it may tolerate temporary overshooting of target.

Amid uncertainty about various issues, commodities are also struggling. Gold rescaled $1800 per troy ounce on safe haven buying and lower bond yields but continued to remain pressurized by Fed's monetary tightening expectations.

Crude oil witnessed one of the most volatile weeks as market players assessed the impact of fallout of OPEC+ talk on production policy on global supply. Fear of price war amongst OPEC producers was countered by signs of tightness in the US market as US crude stocks fell to the lowest level since February 2020.

Copper surged to a 3-week high earlier this week but shed all the gains amid persisting worries about Chinese economy.

Natural gas also witnessed volatile trade amid US weather uncertainty. After days of hot weather in the US, there was some relief as rains associated with tropical storm Elsa hit the US East Coast region. However, extended weather forecasts point to continued hot weather in the coming days.

Overall, the general uptrend seen in commodities has come to an unsteady halt and we may see some volatility unless there is more clarity about various issues lingering presently.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Ravindra Rao Ravindra V Rao is the Head - Commodity Research at Kotak Securities.
first published: Jul 11, 2021 01:15 pm

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