Ravindra RaoAnand Rathi Commodities
For Indian traders, last week was a holiday-shortened one, but commodities suffered a considerable loss due to steep appreciation in the US dollar.
London Mercantile Exchange (LME) zinc fell by more than 6 percent as demand concerns overwhelmed the market. China posted weak macro-economic data as industrial production and fixed-asset investments grew slower than forecast.
The ongoing trade war also intensified with the US imposing tariffs on Turkish aluminium and steel.
LME copper skidded nearly 4.2 percent as the Chilean government and BHP Billiton managements managed to avoid a strike at the world's largest copper mine, in Escondida, after fresh offer satisfied the Union. As Japan also posted weak industrial production for July, metals lost momentum.
The "melting" of metals spread from industrial metals to precious ones as the greenback rose to a many-year high. Amid all these trade tiffs, investors in search of a safe haven rushed to the US dollar.
The yellow metal lost its shine; as a result, continuous liquidation was seen in exchange-traded funds. Last week Comex silver fell more than 3 percent on bearish momentum in both precious and industrial metals.
This week will again be a holiday-shortened one for Indian traders, who will focus on a couple of items. Watch out for commentary about economic outlook and trade-war risks from leading central bankers at their annual meet in Jackson Hole, Wyoming. The minutes of the Fed's monetary-policy-meeting will also drive the market.
Chinese Vice-Minister for Commerce Wang Shouwen heads to Washington to meet key US officials in an effort to ease tensions between the two countries, with a new round of tariffs from both sides scheduled to kick in next week.
Metals have taken a pounding, bearing copper to the bears amid mounting concerns that the trade war could derail global growth, eroding demand for raw materials. Hence, industrial meals will be as volatile as before.
For the year till now, silver has fallen 13 percent, gold 9 percent, LME zinc 28 percent, and LME lead and copper 20 percent and 18 percent, respectively. Hence, we do not rule out the possibility of technical bounce back. Since gold has touched a crucial support on the Comex, it may consolidate here.
However, any further spark in the trade war between the US and China or the US and any European country might hurt sentiment again.
Disclaimer: The author is Head - Commodity Research & Advisory at Anand Rathi Commodities. Views and investment tips expressed by investment expert on Moneycontrol are the expert’s own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.