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Last Updated : Jul 30, 2019 12:17 PM IST | Source: Moneycontrol.com

Gold awaits Fed, copper looking at fresh US-China trade talks

The gold-to-silver ratio fell sharply from $93 as investors flocked to the i-Share Silver Trust. Holdings have gone up for almost two weeks.

Moneycontrol Contributor @moneycontrolcom

Jigar Trivedi

The week gone by was not positive for gold bulls as investors rushed to silver ETFs. Comex gold ended lower, whereas Comex silver finished the week with reasonable gains. The gold-to-silver ratio fell sharply from $93 as investors flocked to the i-Share Silver Trust. Holdings have gone up for almost two weeks.

Judy Shelton, President Donald Trump’s intended nominee for an open seat on the Federal Reserve Board, is calling for a large rate cut (50bps) at the forthcoming Fed meeting.

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Precious metals did not appreciate even after the International Monetary Fund (IMF) lowered global-growth outlook, the lowest since the financial crisis, and suggested that policy ‘missteps’ on trade and Brexit could derail a projected rebound. Even the heightened geopolitical risk of the US-Iran standoff did not support the gold. US Secretary of State Mike Pompeo said in a television interview that he would go to Iran for talks, if necessary.

The dollar strengthened after data showed that the weekly US jobless claims figure fell to a three-month low —206,000 against the 220,000 forecast -- last week, while new orders for key US-made capital goods surged 2 percent in June against 0.8 percent forecast.

The European Central Bank (ECB) signalled its intention to explore monetary easing but left interest rates unchanged, and the president, Mario Draghi, struck a more upbeat note on the economy than investors expected.

Week-on-week Comex silver was up 1.5 percent and MCX silver, 1.7 percent. The i-Share Silver ETF saw significant inflows in the week gone by; holdings have gone up for 12 successive sessions. With the ratio falling to 85, from 93 a week ago, investors bought silver instead of gold.

Gold may climb as investors await developments in the US-China trade talks this week, while widely anticipating the first interest-rate cut in more than a decade from the Federal Reserve. Chinese and American negotiators are scheduled to restart talks on July 30 in Shanghai after a run of mixed signals in recent days, with neither side showing a determined urge to compromise.

Traders will also watch Fed Chairman Jerome Powell’s post-meeting press conference midweek for clues to monetary policy over the rest of this half and into 2020.

Last week, according to Markit, US manufacturing PMI for July faltered; hence, the market will closely monitor the ISM manufacturing PMI on August 1 since the Bloomberg forecast is of greater factory activity.

Last but not the least, on August 2 the US is likely to report weak non-farm payrolls for July. The precious metals market is likely to be very volatile this week.

Since the manufacturing PMIs of the UK, the euro zone and Germany have slipped, there is a very low probability of a turnaround in the sentiment regarding industrial metals. Moreover, as the IMF has raised demand concerns and lowered its global growth forecasts for 2019 and 2020, base metals are likely to be down. With that, the only northward trigger would be any positive news on the US-China trade war front.

Aluminium is likely to continue under pressure due to concerns regarding demand. Global aluminium output was 174,900 tonnes a day in June, up from 174,400 tonnes a day in May, according to the International Aluminium Institute. Profit booking was seen in nickel after China’s top stainless steel producer was said to have cut prices, hurting the outlook for demand. Recently, prices have rallied much without strong fundamentals support. Hence, overall, industrial metals are likely to be volatile.

(The author is Research Analyst - Commodities Fundamental at Anand Rathi Shares & Stock Brokers.)

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Jul 30, 2019 12:17 pm
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