Gold may decline to $1,280-1,260 in the short term

Gold

Sam Nair

Precious metals continue to trade in a broad range with gold locked around the $1,300 troy ounce mark ahead of the outcome of the Federal Open Market Committee meeting scheduled for later today. The two-day FOMC meet concludes today and the Fed is largely expected to hike interest rates for the third time this year.

While markets are likely to have priced in the current rate hike, the focus will be on its forward guidance which should provide indications for a possible fourth rate hike this year. A rate hike may lead to a minor correction as the dollar index gains momentum but an increased likelihood of a fourth rate hike could pressure prices significantly in the short term.

We maintain a slightly bearish bias and may see prices decline to $1,280-1,260 in the coming few trading sessions.

Base metals struggle near highs, could decline on profit booking
Base metals continue to struggle near previous highs but increasing volatility and lack of volumes could indicate a potential short term top in prices. The FOMC meeting could also trigger an upside in the dollar index and a corrective move in the base metals complex as commodities are inversely correlated with the greenback. The lack of fresh and persistent catalysts has been keeping prices in a broad trend.

Copper prices on the London Metal Exchange softened over the week with supply issues in BHP’s copper mine easing after unions reached a new labour agreement.

We maintain our bearish view on base metals. Copper may decline to Rs 480-475 per kg this week and nickel could make another attempt to breach its support at Rs 1,015 per kg.

Crude oil continues to remain under pressure; inventories may decline
Crude oil continues to trend lower pushed lower by fears that the Organisation of the Petroleum Exporting Countries, which may increase supply to compensate for Iran and Venezuela’s supply losses, breaking out of an agreement to reduce output that has supported prices and helped clear a global glut.

The OPEC monthly report showed that Saudi Arabia increased production in May, following Trump reportedly asking OPEC to increase production by 1 mbpd to reduce prices and counter the effects of sanctions on Iran and Venezuela. With OPEC due to meet on June 22, the market is largely focused on OPEC’s report for short term catalysts. The Energy Information Administration (EIA) is due to release it weekly crude oil inventories report with analysts calling for a surprise draw in oil stocks and minor builds in refined products.

Technically, oil prices are likely to remain under pressure and may test its support at Rs 4,390-4,320 per barrel this week. On the upside, a break above its resistance zone placed at Rs 4,500-4,520 could see a minor recovery in prices.

Disclaimer: The author is AVP - Commodities at Stewart & Mackertich Wealth Management Ltd. The views and ideas expressed above may have been suggested to the clients of Stewart & Mackertich Wealth Management Ltd. It is advised that investors/traders should consult with their Certified Experts before taking any investment decision.