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Last Updated : Sep 16, 2020 03:29 PM IST | Source: Moneycontrol.com

Gold prices likely to remain sideways ahead of US Fed meet: Kotak Securities

Gold may remain sideways ahead of Fed decision today however the general bias may be on the upside amid expectations of Fed’s dovish stance.

Ravindra Rao

COMEX gold trades higher near USD 1970/oz after a 0.1 percent gain on September 15. Gold rose as high as USD 1982.4/oz in intraday trade yesterday but shed all the gains to end marginally higher near USD 1966.2/oz. Meanwhile, US equity market shed intraday gains to end flat while US dollar index recovered from lows. The mixed trade is being witnessed amid positioning ahead of the Federal Open Market Committee's

(FOMC) decision today which will be followed by Bank of Japan and Bank of England monetary policy meeting tomorrow.

Fed is expected to keep monetary policy unchanged but market players want more clarity on the recently announced change in inflation strategy as well as on economic outlook and future monetary policy stance. The recent losses in US dollar and gains in equity markets and gold indicate that market players expect the US Fed to maintain a dovish stance. The choppiness yesterday and today, however, indicates some nervousness that Fed may have little new to offer.

Amid other factors, gold remains supported by mixed US economic data, US-China tensions and Brexit uncertainty. After upbeat economic readings from China and Europe, US economic data released yesterday was mixed and this highlights the uneven pace of economic recovery.

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Brexit uncertainty persists as Britain works on an internal market bill which could impact the UK-EU divorce treaty. ETF outflows, however, show weaker investor interest in gold. Gold holdings with SPDR ETF fell by 0.42 tonne to 1247.569 tonne, lowest since July 31.

Gold may remain sideways ahead of Fed decision today however the general bias may be on the upside amid expectations of Fed’s dovish stance.

NYMEX crude trades over 1 percent higher near USD 39/bbl after a 2.7 percent gain yesterday. Crude oil has bounced back after managing to hold above the USD 36/bbl level. Crude trades higher today supported by API weekly report which noted a 9.517 million barrels decline in US crude oil stocks as against expectations of a 1.3 mn bbl rise. API also noted an unexpected decline in distillate stocks but also an unexpected increase in gasoline stocks. API report has fueled expectations of a sharp drop in US crude stocks, however, we may see a sustained rise in price only if the same is confirmed by EIA weekly report due later today. Also, supporting crude oil price is supply disruption in the Gulf of Mexico caused by Hurricane Sally which is moving towards the US Gulf Coast.

As per US BSEE, about 26.87 percent of Gulf of Mexico’s crude production remained shut as of September 15. Crude is also supported by EIA’s forecast of lower crude production from shale resources next month. Crude remains on a stronger footing also amid positioning ahead of OPEC+ review meeting. OPEC and allies are not expected to change their production policy but could discuss the recent correction in price and slow demand recovery and give more emphasis on compliance with production cuts.

However, weighing on price are bleak demand forecasts. The International Energy Agency has revised lower its 2020 oil demand outlook by 300,000 barrels per day to 91.7 million bpd, a contraction of 8.4 million bpd on the year. This comes after downward revision from OPEC and EIA. Mixed economic data also highlights the uneven economic recovery in the US. Data released yesterday showed smaller than expected growth in industrial production but a better than expected reading for Empire manufacturing index.

Meanwhile, trade concerns rose further as WTO ruled that the US violated international regulations by imposing tariffs on more than USD 234 billion of Chinese exports, as reported by Bloomberg. Also weighing on crude price is choppiness in the US equity market amid positioning ahead of Fed decision today.

Crude has bounced back from recent lows and may remain on a stronger footing ahead of inventory report today and until supply risks persist due to storm activity.

The author is VP- Head Commodity Research at Kotak Securities

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Sep 16, 2020 03:29 pm
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