Likely 25-bps-cut in Fed funds rate could support gold prices next week

Commodities

By Anindya Banerjee, SVP & Head of Currency & Commodity Research at Kotak Securities

Gold slipped last week, but silver performed well as a rally in copper prices and a risk-on sentiment pushed it higher. Gold has been a laggard due to strong US economic data. The ISM manufacturing index, a leading indicator of the manufacturing sector, exceeded expectations, even though the services sector ISM index was weaker than anticipated. The US jobs report was solid, with job growth in November  exceeding 2,00,000.

Thus, despite a drop in US treasury yields, gold could not benefit. Traders expect the Fed to cut rates by 25 basis points (bps) in December, which could provide support to gold at lower levels. In the spot market, gold has strong support near $2,600 per ounce, equivalent to Rs 75,650–75,700 per 10 grams on the MCX, with resistance near $2,670 per ounce (Rs 77,700 on the MCX).

Silver traded within a range of $29.60 to $31.50 per ounce in the spot market. Near-term support is expected at $30 and $30.80, and if it manages to break above $31.50 with high volumes, the metal could head for $33 per ounce. On the MCX, the range for silver is between Rs 89,000 to Rs 94,000 per kg, with support expected near Rs 91,000 and Rs 91,800. A break above Rs 94,000 with strong volumes, coinciding with spot prices breaking above $31.50, could propel silver towards Rs 97,000 on the MCX.

Copper clocked marginal gains last week (December 6) in spite of an increase in inventory due to a softer US dollar and short covering, which pushed prices higher. Better-than-expected US economic data last week was also a positive for the metal, which helped prices drift higher. Over the next couple of months, all eyes will be on the Trump administration and its trade policies with China. As Trump takes office in late January, speculation is likely to increase. For the next week, we expect copper to trade within a broad range of Rs 800 to 840 per kg.

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Anindya Banerjee

Head Commodity and Currency Research|Kotak Securities

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Other base metals like zinc and aluminium remained rangebound. Supply disruptions in these two metals are positive factors that could provide demand support on dips. We expect zinc to trade within a  range of Rs 278 to Rs 296 per kg, with a positive bias. Aluminium is likely to trade within Rs 235 to Rs 250 kg.

Crude oil came under pressure despite news that OPEC+ has postponed production hikes due to weaker-than-expected demand and higher production from non-OPEC countries. This decision aims to balance the market and support prices. President-elect Donald Trump’s agenda includes boosting domestic oil and gas production by reducing environmental regulations and increasing drilling.

Oil traders face a "double whammy" with Trump’s presidency: on one hand, the US could boost oil output, and on the other, geopolitical hotspots might cool down, reducing the geopolitical premium in oil prices. Crude has strong support near Rs 5,630-5,650 per barrel on the MCX, followed by Rs 5,520, while the upside remains capped near the Rs 5,900/Rs 5,950 zone.

Natural gas prices dropped sharply due to warmer weather forecasts — it is expected to trade within Rs 250 to Rs 280 per mmBtu.

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