Gold may continue to witness volatile trade as market players assess rising challenges to the global economy, however ,the general bias may be on the upside.
Comex gold was trading mixed near $ 1,780 per ounce on July 2 after a 1.1 percent decline on July 1.
After days of consolidation, gold rose to $ 1,807.7 in the intraday trade, the highest level since 2011, on July 1 but failed to sustain and corrected amid relative stability in equity markets.
Equity markets are holding on to the gains noted in last few weeks as signs of economic recovery and progress in vaccine development offsets increasing virus cases worldwide and increased US-China tensions. Risk sentiment improved as manufacturing PMI from major Asian, European and US economies showed improvement.
US ADP jobs report noted a sharp rise in employment in June but fell short of market expectations. Virus cases are rising globally and market players are worried, especially about the sharp surge in cases in the US which has forced many states to roll back their reopening plans.
US-China tensions have been rising and the situation is worsening with the imposition of new security law in Hong Kong.
While stable equities pressured gold, rising virus cases and geopolitical issues challenge global economic outlook and may continue to support prices. Also supporting gold is the expectations of continuing stimulus measures by central banks and governments to support their economy. Minutes of Federal Open Market Committee, released on July 1, showed that various participants though that the economy would need support “for some time”, Bloomberg said.
Amid other factors, support from strong investor interest is countered by weaker consumer demand. Lower imports from India and China and weaker coin sales reflect weaker demand. As per Reuters reports, the Perth Mint's sales of gold coins and minted bars fell to 44,371 ounces in June from previous month’s 63,393.
Record high prices in India may further dampen demand. On other hand, gold holdings with SPDR rose by 3.2 tonnes to 1182.113 tonnes.
Gold may continue to witness volatile trade as market players assess rising challenges to global economy against signs of recovery but the general bias may be on the upside.
Comex silver was trading largely unchanged near $18.2/oz after declining 2.2 percent a day earlier.
Silver slumped had slumped after failing to break past $19 as the rally in gold faltered near $1,800. ETF investors moved to sidelines after sharp inflows of a day earlier, reflecting hesitance in buying at higher levels.
Silver holdings with iShares ETF were unchanged at record high level of 15489.77 tonnes. However, supporting price is expectations of pick up in industrial demand as manufacturing activity across major economies showed improvement.
Consumer buying also remains strong. Silver may witness choppy trade as virus-related development may affect gold and industrial metals differently, however, general bias may be on the upside amid robust investor interest.
NYMEX crude was trading moderately lower near $ 39.6/bbl after gaining 1.4 percent the previous day. The mixed trade shows a lack of direction in the market as market players continue to assess the virus situation. Stability in equity markets shows that market players are hopeful that stringent restrictions and lockdowns will not be reimposed but rising cases remain a concern.
On the supply side, OPEC has improved compliance with production cuts but Gulf producers continue to overproduce as Iraq and Nigeria struggle to meet commitments and this could hurt future policy.
US crude production and rig count has stabilised after a sharp decline, indicating weakening incentive to cut more.
Crude was trading weaker amid persisting worries about rising virus cases, especially in US. Weekly inventory report was mixed and failed to extend much support. US EIA weekly report noted a sharp 7.195 million barrels decline in crude oil stocks as against the forecast of 0.7 mn bbl decline. The decline was less than the 8.15 mn bbl reported by API hence we saw muted reaction.
EIA also reported an unexpected increase in gasoline stocks, reflecting weaker consumer demand. US crude production was steady at 11 million barrels per day after a modest increase a week ago.
Also weighing on crude and commodities was increasing tensions in Hong Kong over the new Chinese security law which could worsen ties with the US. However, upbeat economic data that shows that countries are recovering from the slump supported the price.
Crude may continue to witness choppy trade as market players assess virus development and its impact on the nascent global recovery, however, general bias may be on the upside as sharp drop in US crude stocks may continue to support.
(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.