Ravindra V Rao, CMT, VP-Head Commodity Research at Kotak Securities
The final week of the September quarter delivered a roller-coaster ride for the markets, with sentiments taking a hit due to expectations of a prolonged period of high-interest rates. The US dollar surged to a 10-month high of 106.839, while US 10-year treasury yields reached 4.6861 percent, marking their highest level since October 2007. These movements were driven by hawkish comments from Federal Reserve officials and growing speculations that the European Central Bank (ECB) and the Bank of England (BoE) have concluded their rate hikes.
In the midst of this market turbulence, COMEX Gold prices experienced a significant downturn, marking their most substantial weekly loss in months. The precious metal slid below the critical $1,900 per troy ounce threshold, primarily due to a sharp surge in US treasury yields, which raised the opportunity cost of holding gold. Notably, SPDR Gold holdings have dwindled to 873.64 tonnes, their lowest level since August 2019. Silver also ended the week on a bearish note, witnessing a 6 percent decline and a notably volatile session on Friday.
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In terms of price action, spot gold in dollar terms breached a crucial support level near $1,884 per troy ounce, concluding the week at its lowest point since March 2023. Additionally, it has penetrated a wedge pattern, signalling the potential for further weakness. A possible extension down to $1,830 per troy ounce may be in the cards, provided that the support-turned-resistance level of $1,884 per troy ounce holds on a weekly closing basis.
LME base metals experienced wide fluctuations. Initially, there was optimism due to China's Industrial profits, which rose by 17.2 percent year-on-year, reversing a trend of decline over the past five months. However, concerns about liquidity and weak housing demand in China, a top consumer of these metals, prompted a pullback in prices. Nevertheless, metals managed to close higher, with Zinc and Aluminium gaining by more than 3.50 percent. Positive manufacturing PMI and Services PMI released over the weekend might lend support to the metals sector in the upcoming week.
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Meanwhile, WTI crude oil prices soared to a 13-month high of $95.03 per barrel. This surge was driven by inventory levels nearing operational minimums. Additionally, forecasts of increased demand from China ahead of the Golden Week holiday further boosted prices. However, expectations of supply increases by Russia and Saudi Arabia in the upcoming OPEC meeting on October 4 led to a slight retreat from these levels. Nevertheless, gained nearly 30 percent this quarter, marking its most significant quarterly increase since March 2022. This surge is primarily attributed to concerns over supply tightness.
From a technical standpoint, NYMEX WTI crude oil has formed a Dark Cloud Cover candlestick formation, typically considered a bearish signal. This pattern suggests a potential short-term top near $95.03 per barrel, with initial objective near $88 per barrel. A close below this level could further pull the price towards the next support zone around $85 per barrel.
Looking ahead to the upcoming week, the spotlight will be on the US labour report, ISM PMI and speeches by Federal Reserve Chair Jerome Powell, along with several FOMC officials, which could introduce data-related volatility.
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