COMEX gold trades moderately higher near USD 1910/oz after a sharp 2.6 percent decline on September 21 when it hit a low of USD 1885.4/oz, the lowest level since August 12. Gold is considered a safe-haven asset which benefits in time of economic and political uncertainty. Risk sentiment weakened yesterday amid concerns that Europe may reinstate lockdown to check the virus spread and on back of an investigative report about suspicious worldwide banking transactions.
Despite weaker risk sentiment, gold plunged over 2 percent as investors sought the safety of US dollar, yen and bonds and moved out of commodities and equities. The fall yesterday was reminiscent of the sell-off seen in March when US and other major countries first announced lockdowns. While US dollar is seen as the preferred asset at present, gold may also benefit from safe-haven buying if global risks continue to intensify.
Gold holdings with SPDR ETF rose by 19 tonnes to 1278.81 tonnes, highest since February 2013. Gold may witness choppy trade along with other commodities as market clarity in needed on possible lockdowns in European countries and the fraudulent banking transaction report.
However, we expect buying to emerge at lower levels as concerns about US economy may limit upside in US dollar. COMEX silver trades modestly higher near USD 24.6/oz after a sharp 10.1 percent decline yesterday when it hit a low of USD 23.78/oz, the lowest since August 12.
Silver fell sharply yesterday amid concurrent sell-off in gold and industrial metals on back of firmer US dollar. Concerns about health of US and European economies also dented demand outlook.
Meanwhile, ETF investors remained on sidelines despite lower prices indicating lack of buying interest. Silver holdings with iShares ETF were unchanged at 17211.13 tonnes, lowest since July. Silver may witness choppy trade as market players assesses recent developments, however, we expect buying interest to emerge at lower levels as general positive outlook for gold may support silver as well.
NYMEX crude trades moderately higher near USD 39.7 per barrel after a 4.4 percent decline yesterday. After a sharp 10 percent rally last week, crude oil was struggling to build the momentum above USD 41/bbl. Crude fell yesterday as part of sell-off across commodities and equities. Risk sentiment weakened as rising virus cases in Europe fueled worries about another lockdown.
As per Bloomberg reports, UK will announce new restrictions on bars and restaurants.
Adding to it were concerns about delay in US fiscal stimulus. US Federal Reserve chairman Jerome Powell reiterated that the US economy is improving, but has a long way to go before a full recovery from the pandemic, as reported by Bloomberg. Chicago Fed’s national activity index data also disappointed.
Crude weakened also on prospect of higher supply from Libya. As per Reuters reports, workers at Libya’s major Sharara field restarted operations after the National Oil Corporation announced a partial lifting of force majeure. Also weighing on price is the restart of production in the Gulf of Mexico disrupted by Hurricane Sally earlier this month. As per US BSEE, about 8.39 percent of crude production in the Gulf of Mexico was shut as of September 21 as against 9.69 percent a day earlier.
However, supporting crude price is OPEC’s willingness to take additional measures if needed, decline in US crude oil stocks and continuing recovery in Chinese economy.
Crude may witness choppy trade unless there is more clarity on restrictive measures in Europe to limit the virus spread as well as the investigative report on suspicious transactions however we do not expect a sustained decline as OPEC’s production policy may continue to support.
The author is VP- Head Commodity Research at Kotak Securities
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