Equity markets are on a firmer footing amid expectations that easing of virus related restrictions may help economic activity pick up while stimulus measures by central banks and governments may help boost recovery.
COMEX gold trades mixed near $1,710/oz after a 0.3 percent gain on May 27. Gold fell as low as $1,684.2/oz in intraday trade on Wednesday but recovered to close above $1,700/oz level.
Gold fell sharply in the last few days as stability in equity market reduced demand for safe-haven assets. Equity markets are on a firmer footing amid expectations that easing of virus-related restrictions may help economic activity pick up while stimulus measures by central banks and governments may help boost recovery.
Improving virus situation in Europe, the US and some parts of Asia has led to the easing of virus-related restrictions. Amid latest on stimulus front, the European Union proposed a 750 billion-euro ($825 billion) recovery fund, two-thirds of which would take the form of grants, while the rest would be made up of more conditions-based loans for which countries could apply, Reuters reported.
However, keeping a floor to the gold price is the weakness in the US dollar. The US dollar index remained under pressure as improved risk sentiment dented its safe-haven appeal. Concerns about the health of the US economy have added to pressure on the currency. Also, supporting gold price is increased US-China tensions and geopolitical tensions. US-China tensions have been high in the last few days over various issues, however, the latest leg of uncertainty is due to China’s security law for Hong Kong.
Tensions rose yesterday as US Secretary of State Mike Pompeo said that China had undermined Hong Kong’s autonomy so fundamentally the territory no longer warranted special treatment. ETF inflows also show renewed buying interest in the metal. Gold holdings with SPDR ETF rose by 2.33 tonne to 1119.04 tonne, highest since April 2013.
Gold has bounced back after taking support near $1,680/oz level and amid increased US-China tensions but stable equity markets has restricted upside. We expect choppy trade to continue and one needs to wait for lower levels to create long positions.
NYMEX crude fell over 2 percent to trade near $32 per barrel after a 4.5 percent decline yesterday. Crude oil price surged to over 2-month high earlier this week however failure to test the $35/bbl level has led to some correction. Weighing on crude price is API weekly report which noted an unexpected increase in US crude oil stocks and a bigger than expected rise in product stocks.
API noted an 8.73 million barrels increase in US crude oil stocks as against forecast of 1.9 mn bbl decline. Also, weighing on crude price are concerns about US energy exports as increased tensions between the US and China threatens the partial trade deal signed earlier this year. Furthermore, weighing on price is mixed reports on OPEC and allies future course on production policy.
OPEC and allies are due to meet on June 10 to discuss their production policy and market players want to see if more action is possible. Reuters noted that Russian Energy Minister met with domestic major oil companies to discuss the implementation of global oil production curbs and the possible extension of the current level of cuts beyond June. Bloomberg reports noted that Russia was in favour of easing up on supply cuts as planned in July.
Supporting crude price is firmness in the US equity market as market players focus on reopening of global economies which will help boost economic activity and hopes of additional stimulus measures to support economic recovery. API inventory report has broken the upward momentum in crude oil price and we could see some extended correction at least ahead of inventory report today.
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.