By Ravindra V Rao, CMT, VP-Head Commodity Research at Kotak Securities
The global financial landscape experienced fluctuations throughout the week ended Februray 2, with investor confidence swaying due to concerns in the US banking sector and evolving expectations regarding Federal Reserve interest rate cuts. The release of a robust US jobs report, coupled with indications from the Federal Reserve chief that a March rate cut is unlikely, added complexity to the market dynamics.
During the January Federal Open Market Committee (FOMC) meeting, the Federal Reserve decided to keep the funds rate unchanged at 5.25 percent - 5.5 percent, marking the fourth consecutive meeting at this level. The Fed acknowledged improving risks concerning their employment and inflation goals but emphasized that rate reductions would only be considered when they have greater confidence in sustainable inflation movement toward 2 percent. Strong US job data for January and stable unemployment rates contributed to a decrease in market expectations for interest rate cuts.
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COMEX Gold prices witnessed a weekly gain, influenced by various factors, including the prospect of a US interest rate cut, declining US Treasury yields, uncertainties surrounding New York Community Bancorp, and geopolitical tensions in the Middle East. However, on Friday, gold relinquished around 1 percent of its gains as investors adjusted their positions following the release of the US non-farm payrolls report, indicating a resilient labour market.
Silver prices experienced a decline, reaching approximately $22.5 per ounce, reflecting a pessimistic industrial outlook amid projections of a further economic slowdown in China, a significant consumer of the metal. In terms of pricing, COMEX gold appears to have encountered a resistance level around $2080 per troy ounce. It is essential to note that a sustained upward movement beyond this resistance is required to propel it towards the next level at $2100 per troy ounce. In the absence of such sustained upward momentum, there is a possibility that bears could exert downward pressure, aiming for the immediate support level at $2028 per troy ounce.
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WTI Crude faced a substantial weekly decline of over 7 percent, driven by unconfirmed reports of progress in negotiations to pause the Israel-Hamas conflict. Despite this, crude oil closed January with a 6 percent upside, marking its first monthly gain since September, driven by escalating fears of wider conflicts in the Middle East.
In terms of price action, WTI Crude oil, it has reached a critical trend line support at approximately $71 per barrel. A significant breach of this support, confirmed by a closing basis, has the potential to drive crude oil prices further down, targeting a level around $67 per barrel. Conversely, resistance is identifiable near $74 per barrel, and a breach above this level could reinvigorate bullish sentiment, providing an advantage to the bulls in the market.
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In the upcoming week, market participants will closely watch the US ISM services PMI, speeches from Federal Reserve officials, and Chinese inflation numbers. Federal Reserve Chair Jerome Powell's interview on CBS news is anticipated to provide insights into inflation risks, expected rate cuts, and the state of the banking system. Additionally, concerns regarding loans linked to commercial property and associated risks from exposure to the US real estate market may impact global risk sentiments.
As geopolitical tensions in the Middle East continue to simmer, oil prices are expected to remain highly volatile, posing a potential threat to global supply. The intricate interplay of economic indicators, central bank policies, and geopolitical events will likely keep investors on their toes, navigating through a landscape of uncertainty in the weeks ahead.
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