Speculators last week increased their bullish positions in COMEX gold and silver contracts.
Gold prices ended on a positive note last week after recording minimal volatility on the back of rapid movement in dollar which showed strength against its major crosses. Volatility was witnessed in gold prices with prices hitting a high of $1,975 per troy ounce and low of $1,911
Same was the case for silver where it tested $27.75 on the upside and a low of $25.98 per ounce. Increased uncertainty between the US and China saw no further progress and kept the volatility low for the dollar as well as the yellow metal. Dollar remained supported at lower levels following better-than-expected economic numbers from the US.
As the number of affected cases rise, questions regarding the vaccine are also increasing. Russia became the first country last month to announce the vaccine which created quite a stir in the market, although how effective it is still a question.
Companies of other major economies are also hoping for successful trials which will give them some positive news on the vaccine. There are several claims of vaccinations hitting the market as early as in November or December although only time will tell the possibility of the same.
US and China trade tussle keeps on increasing by the week, and now with the sale of Tik-Tok issue in place the heat between the two is reaching new heights. There have been to and fro actions and comments thereby keeping market participants on the edge.
US at the start of the week said that it is considering blacklisting China tech firm SMIC (chipmaker). On other hand, China said that they will sanction senior officials who visit Taiwan. These updates triggered choppiness and it will be very important to see what further comments or updates the market gets from trade war front.
On the other hand, border tensions between India and China is also giving direction to the market as both the countries had commented that they will work on maintaining their peace and distance at the border although the recent activity from both sides differs from that statement.
Last week, market participants kept an eye on the increased uncertainty on the Brexit front after fear that Britain will end its post-Brexit transition period without agreeing any trading arrangements. Reports that Brussels has stepped up planning for a 'no-deal' Brexit after Prime Minister Boris Johnson's government refused to revoke an ultimatum on breaking the divorce treaty kept most market participants on the edge. This week, Bank of England will be releasing its policy statement and expectation is that the central bank could maintain a dovish stance. Increased uncertainty on the same is likely to keep precious metal higher.
Positive data points are capping gains for the bullions, US consumer prices last week rose for a third month in August, signalling a gradual pickup in inflation as the economy recovers. Investment in gold increased for the week ended August 23, 2020 and holdings currently stand at 1,252.37 tonnes compared to holding of 1,248.28 tonnes in the previous week. Holding in ishares ETF witnessed an outflow of around 11.58 tonnes and holdings currently stand at 17,843.35 tonnes. Speculators last week increased their bullish positions in COMEX gold and silver contracts.
Looking ahead to this week, the main economic focus will be on the FOMC policy statement and press conference, Fed governor Jerome Powell's statements will be very important to watch for. In the headlines, it looks like we could be headed for another ratchet higher in US-China trade tensions, and the fact that US Congress seems to be getting farther away from passing a new economic stimulus bill which may continue putting pressure on stocks and other risk-sensitive assets. In other words, volatility in the short term is going to be high with a negative bias.
The author is VP – Commodities Research at Motilal Oswal Financial Services.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.