Uncertainty over US Presidential Election may cap upside in gold with safe haven buying in Yen and USD

Commodity prices traded lower in the week gone by with crude oil prices falling the most at more than 10 percent while Natural gas rallied by nearly 12 percent on strong winter demand. Base metals traded under pressure on lockdown in Europe amid worries over a surge in virus cases. Bullion prices ended in red despite some recovery in the last trading session amid stronger dollar-dominated price fluctuations ahead of US Presidential Elections. The greenback rallied above 74 mark gaining 1.37 percent for the week against the major currencies.

Bullion prices traded lower with a rally in dollar index ahead of US Presidential Elections despite concerns over slower economic growth after France and Germany imposed lockdown for one month shutting around 80 percent of economic activities. COMEX spot gold prices ended 1 percent down at $1878 per ounce witnessing some recovery in last trading session. Spot silver prices at COMEX plunged by nearly 4 percent to $23.66 per ounce during the week with added pressure from weak base metals. Bullion prices at MCX capped downside supported by weaker rupee which fell by around 49 paisa against the dollar for the week.

Gold prices headed for the third monthly loss lodging the worst fall since 2019 as investors cash in profits after prices hit an all-time high at $2075 per ounce. Prices have corrected more than 9 percent from the all-time highs. The uncertainty over US stimulus and surge in virus cases in Europe and US has led investors and central banks to liquidate some of the gold holdings. The Gold ETF holdings at SPDR gold shares fell to 1257.67 tonnes from 1275 tonnes a month ago. The central banks were net sellers of gold for the first time in a decade for the quarter ended in September 2020 with net sales totalling 12.1 tonnes compared to the net purchase of 141.9 tonnes a year ago. (source: WGC)

The US CFTC data showed that money managers have decreased their net long positions in gold by 3702 lots in last week while hedge funds boosted their net long position in silver to 14 week high by 1708 lots.

Bullion prices are expected to trade in current range as uncertainty over US election may cap upside with safe-haven buying in Yen and Dollar. On contrary, fear of lockdown in the US on record virus cases and economic growth concerns may limit downside in precious metals. COMEX spot gold prices have strong resistance at $1940 to break to resume the uptrend, near term support lies at $1850 and $1836 per ounce. COMEX spot silver prices have near term support at $21 per ounce, resistance at $26 per ounce.

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Tapan Patel

Senior Analyst - Commodities|HDFC Securities

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  Bullion prices may trade sideways with positive bias this week on global uncertainties
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  Gold December contract may continue to trade higher with resistance at Rs 53,500 per 10 gram
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  Crude oil prices to trade in range with near-term resistance at $41.50 per barrel this week

At MCX, Gold December contract has important support at Rs 49,800 per 10 grams and strong resistance at Rs 51,200 per 10 grams for the coming week. MCX Silver December may follow cues from base metals with support at Rs 58,000/56,000 per kg and resistance at Rs 63,500 per kg.

(Tapan Patel is Senior Analyst - Commodities at HDFC Securities.)

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