Silver outperforms gold; crude trades higher

Silver prices outperformed gold, with spot silver at Comex rallying by more than 17 percent to the highest levels since October 2013.

The gold/silver ratio fell to 83.50, indicating stronger outperformance of silver. Bullion prices rallied on heightened risk sentiments over US-China political tensions and extension of stimulus measure by Europe and the US amid sluggish economic recovery.

Gold ETF holdings continues to hit record highs, as holdings at SPDR gold shares rose to 1,228.81 tonnes on July 24. The CFTC data showed that the money managers have increased their net long positions in gold to the 14-week high by 6,800 lots.

The weaker dollar amid negative real rates may support gold prices in medium term. The plunging yields will drive investors out of the dollar, which may lower the opportunity cost for buying gold. We expect gold prices to trade higher with near term resistance at $1,920-2,000 and support at $1,850.

At MCX, August gold prices have near term resistance at Rs 52,000 per 10 gram and support at Rs 50,200 per 10 gram. Silver prices at Comex may touch $26 per ounce in the short term, with strong support at $20.70.

At MCX, September silver prices have important resistance at Rs 65,000 per kg, support lies at Rs 59,000 per kg.

Crude oil traded higher, with benchmark Nymex WTI crude trading above $41 a barrel, gaining nearly 2 percent for the week. The buying in oil prices was majorly contributed from weaker dollar index.

The overall strength in commodities supported crude oil prices to trade up after the European Union announced new stimulus package.

The total US oil rig count rose for the first time since March, gained by 1 to 181 in the last week as per data published by Baker Hughes.

The CFTC data showed that Nymex WTI and Brent crude oil combined net long positions rose by 6,192 lots last week, the highest in three weeks.

We expect oil prices to continue to trade in the current range of $38-43 per barrel, a breakout above $43 may lead prices to $48. On MCX, August crude futures contract has important resistance at Rs 3,200 per barrel and support at Rs 2,960 for the week.

Base metals complex traded higher, with nickel, aluminium and zinc rising the most, while copper prices ended marginal down for the week.

Nickel prices at LME rose by more than 3 percent on demand recovery hopes after Goldman Sachs increased its price outlook on Tesla Inc founder Elon Musk’s promise of  giant long-term contract with nickel-mining companies.

Copper prices traded under pressure on demand concerns amid political tensions between the US and China. The rise in geopolitical tensions may impact future trade pacts.

Copper inventories at SHFE fell by 963 to 1,57,684 tonnes during the week. LME copper prices have touched strong resistance near $6,645 at 76.4 percent retracement levels of previous fall. We expect copper to trade down with support at $6,240 per tonne. MCX August copper futures have near- term resistance at Rs 512 per kg, with support at Rs 490 per kg for the short term.

(The author is Senior Analyst - Commodities at HDFC Securities.)

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