Ravindra V Rao, VP-Head Commodity Research at Kotak Securities
Commodities across the board saw upside this week buoyed by softness in dollar index and tightness concerns that spurred gains in some of the commodities.
Dollar started the week on a positive note and surged to 102.807 as US non-farm payrolls added more than expected 2,36,000 jobs, signaling resilient labour demand, backing the possibility of yet another rate hike. However, the greenback reversed upside and slipped to 100.78, close to early February lows, as US CPI eased followed by US PPI which grew at a slower pace in March. Despite an easing in US headline CPI, the core CPI remains sticky, raising the odds for another quarter-point rate hike in the May FOMC meeting.
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COMEX Gold slipped from a 13-month high hit last week but managed to recover as softer inflation spurred hopes that the Federal Reserve's monetary-tightening cycle is nearing an end. Also, IMF's gloomy medium forecast and recession warning by Fed officials weighed on market sentiments, helping the safe haven metal sharply rebound from below $2000 levels earlier in the week to near one year high at $2063.4 per troy ounce. The IMF revised its global growth forecasts lower to 2.8 percent from 2.9 percent for 2023 and to 3 percent from 3.1 percent for 2024, citing tight policy stances.
Federal Reserve staff in a presentation warned FOMC members that fallout from the US banking crisis is likely to tilt the economy into recession later this year. On the price action front COMEX Gold might take resistance near $2078 per troy ounce which is a double top whereas silver's rally might take a pause near $26.50 per troy ounce. Some corrective moves can't be ruled out in precious metals after back-to-back weekly gains. However, the primary trend remains bullish as elevated core inflation coupled with prospects of a looming recession raises the odds of stagflation and is the perfect bullish cocktail, especially for gold prices going forward.
Crude oil continued to sparkle this week and jumped to its highest levels since November as supply tightness concerns and positive outlook by IEA (International Energy Agency) and EIA (Energy Information Administration). EIA lifted Brent crude price forecast to average $85.01 a barrel this year, about 2.5 percent higher than the March forecast while the head of the IEA, Fatih Birol, expects the tightening oil market to prompt higher prices in the second half of the year.
On the technical front, NYMEX WTI crude oil has penetrated a multiple resistance zone near $82 a barrel and is trading higher. However, for the breakout to confirm it should close above the break candle high of $83.30 a barrel which coincides with the 200 DMA resistance of $83.70 a barrel. A sustained close above the 200 DMA resistance of $83.70-$84 per barrel zone would indicate the next leg up in crude oil prices.
For the coming week, there are no major events from the US, other than Flash PMIs for April month. Chinese economic data will be keenly awaited as continued expansion in economic activity may hint towards the first signs of an even recovery. This may give a much-needed respite, especially to base metals, which were knocked off by growth concerns, only to pick up soon after the US inflation print.
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