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Last Updated : Oct 14, 2020 02:58 PM IST | Source: Moneycontrol.com

Gold likely to remain choppy, stick to buy-on-dips approach: Kotak Securities

Gold may continue to witness choppy trade until more clarity emerges on the second US stimulus package.

Ravindra Rao

Comex gold was trading moderately high near 1,899/oz on October 14 after a 1.8 percent decline the previous day. Gold came under pressure after failing to build on the momentum above $ 1,930. Though it has sharply come off the highs, the metal is still holding above the recent low of $ 1,880.

Gold continues to witness volatile trade amid choppiness in equity markets and the dollar as market players assess the possibility of a second US stimulus.

On October 13, equity markets fell and US dollar edged up as another attempt at a stimulus package failed to materialise. However, market players expect that a deal can be reached after elections.

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The dollar’s safe-haven appeal was enhanced by rising coronavirus cases that have forced several countries to impose more restrictions. Setbacks in vaccine or treatment trials for COVID-19 also pulled investors to the safety of the dollar.

Volatility in gold pushed ETF investors to the sidelines. Gold holdings with SPDR ETF were unchanged at 1277.647 tonne after modest inflows a day earlier.

Gold will continue to be volatile until there is more clarity on US stimulus. However, we maintain buy on dips view as concerns about the health of the US economy may keep a check on the dollar while increasing virus risks may increase the safe-haven appeal for the metal.

On LME, base metals were trading in a narrow range after ending lower the previous day. Weighing on prices is global risk aversion amid another negative development on the vaccine front and waning hopes of a US stimulus at least until elections.

Prices may further come under pressure amid gains in the dollar Index, worries over surging virus cases and their impact on global economic health.

The dollar index was trading unchanged near 93.55 after gaining 0.5 percent the previous day amid uptick in the safe-haven demand. The downside may, however, be capped amid demand optimism from top consumer China. A spate of upbeat economic data from China continues to indicate an improving pace of recovery, which, in turn, fanned demand optimism from the region.

Trade data from the region too showed that imports jumped by 13.2 percent in September compared to a 2.1 percent drop in August, signalling an upbeat pace of recovery in the region.

On the fundamental front, copper may come under pressure amid recent buildup in stocks at LME warehouses, however, lower stockpiles at SHFE warehouses along with the threat of supply disruption from Chilean copper mine and jump in Chinese copper imports may cap the downside.

Data from China shows that its copper imports in September rose to 722,450 tonne, the second-highest level on the record while cumulative imports in the first nine months of 2020 were up 41 percent from a year earlier at 4.99 million tonne.

Lead, nickel and zinc prices may come under pressure amid higher stocks at LME, however, the general downtrend in stocks at SHFE and robust demand outlook from China may cap the downside.

The metals pack is likely to witness mixed trade on October 14, however, bias for the day may be weak amid bleak risk appetite and gains in the dollar.

Further cues may come in from economic data from the Euro Zone and the US along with comments by central bankers and their impact on the dollar. The focus will continue to be on coronavirus, US stimulus discussions, Brexit talks and the US-China trade tensions.

The author is VP- Head Commodity Research at Kotak Securities

Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Oct 14, 2020 02:57 pm
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