COMEX gold trades moderately higher near USD 1970/oz after a 0.8 percent gain on September 14. Gold rose yesterday after a 0.8 percent decline on Friday. The mixed trade shows a lack of direction in the market. Price continues to remain stuck in a broad range of USD 1900-2000/oz and unless there are major triggers we may see directionless trade continuing.
Choppiness in the equity market and US dollar is affecting gold. US equity market edged up yesterday attempting some recovery after two weeks of losses. The US dollar index has turned choppy after hitting a 4-week high last week. Market players are positioning for upcoming central bank meetings with the general expectations that central banks may maintain their accommodative stance.
US Federal Reserve, Bank of Japan and Bank of England are due to hold their monetary policy meetings this week, and while no change in monetary policy is expected, market players want more clarity on future front. Fed meeting will also be watched to get more clarity on the change in inflation strategy announced last month.
Amid other factors, rising global cases have unnerved market players but this has been offset by progress on the vaccine front. UK-EU tensions are high over Britain’s proposed internal market bill that gives Britain the power to override parts of Brexit agreement, however, the bill found approval in UK Parliament and passed its first hurdle in the House of Commons, as reported by BBC. Chinese industrial production and retail sales data showed further improvement in the economy, however, this countered with mixed readings from the US and Europe.
Mixed activity ETF flows also shows a lack of direction in the market. Gold holdings with SPDR ETF were unchanged yesterday at 1247.99 tonnes, a day after modest outflows.
Gold may remain choppy amid lack of clear cues, however, general bias may be on the upside owing to increasing challenges to the global economy and hopes of a dovish stance of major central banks.
NYMEX crude trades in a narrow range above USD 37 per barrel after a 0.2 percent decline yesterday. Crude oil has turned choppy after testing June lows last week amid mixed factors and OPEC’s review meeting. Supporting crude price is the recovery in US equity market and choppiness in the US dollar.
US equity market edged up yesterday as market players focused on progress on the vaccine front and possibility of central banks maintaining dovish stance overlooking the mixed economic data, rising virus cases, increased US-China tensions and Brexit uncertainty. The US dollar index also turned choppy amid positioning ahead of central bank meetings this week. Crude also benefitted from some risk premium due to increased storm activity in Atlantic.
As per US NHC, there are seven weather patterns developing in the Atlantic of which Hurricane Sally and a tropical wave have formed in the Gulf of Mexico, a key oil-producing region. As per US BSEE update, about 21.39 percent of Gulf of Mexico crude production has been shut due to storm activity. Hurricane Sally is likely to make landfall in Louisiana, as per NHC. Also supporting crude is the forecast of lower US crude production next month. As per EIA drilling activity report, US crude production from shale resources may decline from 7.708 million barrels per day to 7.64 million bpd in October.
However, weighing on crude price is weaker demand forecast for this year and next. OPEC, in its monthly outlook, forecasted that global oil demand will fall by 9.46 million bpd in 2020 as against the previous estimate of 9.06 million bpd. OPEC sees consumption rising in 2021 by 6.62 million bpd, 37,000 bpd less than expected last month. OPEC’s bleak outlook comes days ahead of OPEC and allies production review meeting on September 16-17.
OPEC and allies are likely to discuss the recent drop in crude price as well as slowing demand recovery however no change in production policy is expected.
Crude may remain choppy unless there is more clarity on OPEC front as well impact of increased storm activity. The general bias however could be on the upside owing to storm concerns and improved risk sentiment. Focus today will be on IEA’s monthly outlook, storm activity in Atlantic, European and US economic data and development relating to US-China, Brexit and virus outbreak.
The author is VP- Head Commodity Research at Kotak SecuritiesDisclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.