Crude has corrected again and we may see some extended losses if risk sentiment weakens further.
Comex gold was trading marginally lower near $ 1,797 per ounce on July 17 after declining 0.8 percent the previous day. Struggling for direction in the last few days, gold stayed near the key $ 1,800-level.
Considered a safe haven asset, gold has shown a strong positive correlation with equities and commodities in the last few days, as market players assess virus risks and geopolitical tensions and switch between riskier assets and the US dollar.
Equity markets and most commodities ended lower on July 16 while the dollar edged up as the focus shifted from optimism about global recovery, progress in vaccine development and hopes of continuing stimulus measures to some mixed economic readings, rising coronavirus cases and heightened US-China tensions.
Data from major economies shows that recovery is picking up but some mixed readings and infections were clouding the outlook.
US retail sales, Philadelphia Fed index and NAHB housing market data was better than expected but weekly jobless claims showed a smaller-than-expected decline.
US unemployment rate has fallen sharply in the past two months but still remains well above pre-COVID levels.
The European Central Bank kept its monetary policy unchanged in line with market expectations but president Christine Lagarde warned that recovery was in its early stages and remained uneven across sectors and jurisdictions, leaving the outlook “highly uncertain” with risks tilted to the downside, CNBC reported.
Tensions between US-China and China and other countries have been rising. With countries taking action against each other, geopolitical risks have risen adding to challenges for the global economy.
Gold ETF investors moved to sidelines, awaiting more clarity on price direction. Gold holdings with SPDR ETF were unchanged at 1206.888 tonnes, highest since April 2013.
Gold may witness choppy trade as market players assess virus situation and geopolitical issues but the general bias may be on the upside amid increasing challenges to the global economy.
NYMEX crude was trading in a narrow range above $40 per barrel after a 1.1 percent decline the previous day. Crude oil fell once again on July 16, failing to sustain above the crucial $ 41 level.
The crude weakened amid losses in the US equity market and as market players assessed OPEC’s production policy. Share markets in the US came under pressure after four days of gains following concerns over rising infections, mixed economic readings and increased tensions with China.
Though infections are rising across the world, market participants are concerned about the record surge in the US, which has forced several states to roll back their reopening plans. If more restrictions are imposed, it may hurt the economic recovery.
On the supply side, US crude stocks fell more than expected but production has been steady for last three weeks, a sign that producers are not willing to cut more.
OPEC and allies have decided to slow the pace of production cuts from 9.7 million barrels per day to 7.7 million barrels from August to December.
The actual cut, however, may be higher as members states like Iraq and Nigeria may reduce more to compensate for their overproduction in May and June.
Crude has once again corrected after taking resistance near $41 and we may see some extended losses if risk sentiment weakens. US economic data and weekly rig activity report would be watched closely during the day.
The author is VP- Head Commodity Research at Kotak SecuritiesDisclaimer: 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.