Ravindra Rao
Comex gold was trading marginally higher near $1,805/oz after making a modest 0.7 percent gain in the previous week when it tested its highest level since 2011. Gold retreated after failing to break past the $1,830-mark but is holding near the $1,800 level as market players assess the virus situation and its economic and health impact.
Stability in the equity market has kept a check on gold’s upside. But improved risk sentiment and rising virus cases in the US have also pressurized US dollar, lending support to gold.
Global virus cases are rising rapidly, forcing countries to impose restriction and rollback reopening plans. While market players are becoming increasingly nervous about the spike, stability in equity markets shows general optimism that the economic recovery may continue with support from central banks and stimulus measures.
Economic indicators from major economies are also pointing to a pick-up. Amid other factors, gold is supported by increased US-China tensions. ETF outflows also show some profit-taking by investors. Gold holdings with SPDR ETF fell by 0.36 tonne to 1200.458 tonne. This is the second consecutive decline in holdings after they tested the highest level since April 2013.
Gold has come off recent highs and we may need fresh trigger to build the momentum to breach these level. With mixed factors in place, we may see choppy trade during the day, however, buying may be seen at lower levels as rising virus cases and US-China tensions may support price.
Base metals on LME traded sideways to higher in opening trades after clocking sharp gains the previous week. LME copper was up more than 2 percent, trading near multi- month high of $6,570 extending last week’s more than 6.5 percent rally.
Prices are being supported by demand optimism, especially from top consumer China, and increased risk appetite as is evident from gains across global shares.
Recent spate of upbeat data from major economies, including China, has fanned hopes of global recovery, which in turn has fuelled demand optimism for metals.
Prices may also seek support from the weakness in the US Dollar Index but infections and trade tensions with China may cap gains.
Copper prices may seek support from falling inventories at LME warehouses along with worries over supply disruption from top producer Chile amid signs of tightness in physical market.
In Chile, workers at Antofagasta Minerals’s Zaldivar copper mine have voted in favour of strike action after rejecting a pay offer, Reuters reported. The metal pack may trade sideways to higher led by surge in copper prices as demand optimism, a weak dollar and supportive fundamentals lend support.
Copper stocks at LME fell by 25,300 tonne the previous week, while on-warrant stocks fell by 6,200 tonne on July 10 to 88,600, the lowest since January 16.
In case of SHFE, copper stock rose by 23,018 tonnes, gaining for second straight week but remained far below its peak in March. The decline in stocks has led to LME Cash to three month spread flipping into backwardation, signalling tightness in physical market.
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
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