Copper, Zinc look positive amid bullish candlestick formations on short term charts

This was very encouraging for dollar denominated commodities, all of which have been hurt by aggressive Fed rate hikes since last year.

This week has turned out to be one of the best in 2023 for all the risky assets, buoyed by increasing hopes of pause in the United States Federal Reserve’s tightening campaign soon.

The Dollar slipped to a 15-month low of 99.5 as both inflation gauges, CPI and PPI, eased in June, reinforcing bets that the Fed is approaching an interest-rate peak. US CPI rose just 3 percent year-on-year (YoY) in June, the smallest increase since March 2021; and sharply lower compared to four decades high of 9.1 percent in June 2022 . While PPI climbed 0.1 percent YoY, lowest since August 2020, following a 0.9 percent increase in May.

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Core CPI too eased to 0.2 percent month-on-month (MoM), the smallest increase in almost two years, showing that overall inflation has cooled significantly since its peak last year. This was very encouraging for dollar denominated commodities, all of which have been hurt by aggressive Fed rate hikes since last year.

COMEX Gold hit close to one-month high at $1967.8 per troy ounce registering best weekly gains in more than two months amid evidence that US inflation pressures were subsiding. This prompted markets to scale back expectations of further interest rate hikes, thereby weighing on US Treasury yields and Dollar. US two-year treasury yields have slipped more than 25 bps this week while Dollar hovers near the lowest since April 2022 following the US inflation report. Silver has rallied more than 7 percent in the week thanks to gains in both gold and industrial metals.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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Crude oil registered its third consecutive weekly gain and traded near highest since April, buoyed further by supply disruptions from declining Russian shipments and a production halt in Nigeria. Apart from optimism from a possible pause in rate hike, LME base metals also received support from hopes of more fiscal stimulus from China.

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As of now, investors are cheering the prospects of the Fed calming price pressures without tipping the economy into a recession. However, there are some Fed officials who believe that it’s too soon for policymakers to say they have done enough to return US inflation to their target and that more rate hikes may be needed.

Base metals may remain cushioned near one-month highs as Liu Guoqiang, Deputy Governor of the People's Bank of China (PoBC) expressed optimism that they have ample policy room to deal with unexpected challenges and changes. Guoqiang pressed on the need to be patient and confident in the economy’s continued and steady growth.

Having said that, challenges persist as International Monetary Fund (IMF) pointed towards slowing growth in China and kept their global GDP growth forecast for 2023 unchanged at 2.8 percent down from 3.4 percent in 2022 since recent high frequency indicators paint a mixed picture.

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On the price action front, COMEX Gold has moved out of the range and is inching towards $1,977 per troy ounce, the immediate resistance. Morning star candlestick formation and a harmonic 5-0 bullish formation has pushed COMEX Silver price higher and is nearing close to the objective of $26 per troy ounce.

WTI crude oil has reached the 200 DMA resistance near $77.50 a barrel which might trigger some corrective move in the coming week. Copper and Zinc both look positive amid bullish candlestick formations on short term charts.

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