Crude may witness choppy trade amid mixed factors, however, we expect selling pressure to emerge at higher levels amid persisting demand worries and prospect of higher supply from US and OPEC.
COMEX gold December contract trade 0.5 percent high near USD 2,080/oz after a 1 percent gain in the previous session. Spot gold has hit a fresh record high near USD 2,075/oz and is currently trading near USD 2,067/oz.
In the domestic market, MCX gold October contract hit a high of Rs 56,079/10 gram on August 7, the highest price ever for a first month contract. Gold has continued to set new highs supported by persistent weakness in the US dollar, lower bond yields, strong investor interest and safe-haven buying amid rising virus cases, geopolitical tensions and increased US-China tensions.
The US dollar index trades near 2-year low weighed by lower bond yields, mixed economic data, rising virus and political wrangling over additional stimulus measures. US weekly jobless claims data released yesterday was better than market expectations but contrasts with disappointing ADP jobs report released a day earlier.
US policymakers have increased efforts to reach a deal ahead of a self-imposed weekend deadline but still lack consensus over terms of the deal. Gold holdings with SPDR ETF were unchanged on August 7 at 1267.96 tonnes, the highest level since February 2013, after sharp inflows in last few days. Global virus cases have continued to rise forcing countries to reimpose restrictions hampering economic activity and hopes of a quick recovery. BOE, at its monetary policy meeting yesterday, highlighted that it does not expect the UK economy to exceed its pre-coronavirus levels until the end of 2021.
The US and China have been bickering over various issues and this has kept market players nervous about the trade deal. Gold has surged over 35 percent since start of the year however a large share of the rally has come in last few sessions. While there are spates of positive factors for gold, the concurrent rally in equity market, commodities, bonds and gold is a rare combination and highlights that the rally is more because of fund inflow in financial markets which is chasing all asset classes.
Gold’s rally also remains unfazed by concerns about consumer demand due to record high prices. Gold’s momentum remains unfazed and it continues to be on path to the next benchmark of USD 2100/oz however some caution is warranted as we move close to weekend and key US non-farm payrolls data.
COMEX Silver trades up by over 2.5 percent near USD 29/oz and hit a session high of USD 29.915/oz, the highest level since February 2013. MCX Silver September contract hit a high of Rs 76360/kg yesterday, the highest level ever for a first month contract. Silver trades higher supported by firmness in gold, recovery in industrial sector and strong investor inflows.
Gold has surged to record high level shifting some buying interest in silver which has a strong positive correlation with gold and is much cheaper. Manufacturing activity across the globe is showing improvement which improves outlook for silver’s industrial demand.
Silver holdings with iShares ETF rose by 57.93 tonnes yesterday to a fresh record high level of 17866.67 tonnes. The spot gold silver ratio is near 72 levels, the lowest since 2017, highlighting silver’s outperformance. Silver has risen almost over 60 percent so far this year however almost all of it has come in last three weeks. While positive factors persist they do not justify the sharp gains seen in such short span of time. So while the momentum is still positive, the rally is unlikely to sustain for long and market players need to be cautious.
NYMEX crude trades moderately higher near USD 42/bbl after a 0.6 percent decline yesterday. Crude oil has turned choppy after testing the highest level since March earlier this week amid mixed cues. Crude remains supported by persistent weakness in US dollar and strength in US equity market and upbeat manufacturing data from major economies.
US equity market rose for the fifth consecutive day supported by better than expected jobless claims data and efforts by policymakers to reach consensus on additional stimulus plan. The US dollar index trades near 2-year lows weighed down by lower bond yields and increasing concerns about health of US economy.
However, weighing on crude price are demand concerns amid rising virus cases globally which has forced countries to take restrictive measures threatening the economic recovery. Increased US-China tensions has also kept worries high about the US-China trade under which China has committed to buy more US energy goods. Also weighing on crude price is mixed inventory report.
US EIA report noted a sharp decline in US crude oil stocks but also an increase in gasoline and distillate stocks while crude stocks at Cushing, the delivery terminal for NYMEX crude futures, rose for the fifth consecutive week highlighting increasing glut in the region.
OPEC supply is also expected to improve as producer group reduces its production cut starting August. Iraq however committed to make an additional cut in its oil production of about 400,000 barrels per day in August to compensate for its overproduction over the past period under the OPEC supply reduction pact, as reported by Reuters. Highlighting indecisiveness in the market, Saudi Aramco cut its September official selling prices to Asia by 30 cents a barrel from August and left its prices to the US unchanged from the previous month (Reuters).
Crude may witness choppy trade amid mixed factors however we expect selling pressure to emerge at higher levels amid persisting demand worries and prospect of higher supply from US and OPEC.
The author is VP- Head Commodity Research at Kotak SecuritiesDisclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.