Ravindra Rao
Commodities were trading in a narrow range in the international market on July 30, tracking mixed trends in equity indices and modest gains in the US dollar.
Comex gold was moderately high near $ 1,960/oz after gaining 0.5 percent the previous day when it hit a record high of $1,974.9.
In the domestic market, MCX August gold contract hit a high of Rs 53,399 per 10 gms, the highest on record for a front-month contract.
Comex silver was trading mixed near $24.3/oz after a 0.1 percent gain the previous day. Silver turned choppy after testing 2013 highs earlier this week. Choppiness in gold and commodities at large has affected silver as well.
Gold traded higher as the dollar index continued to hover near the two-year low after US Federal Reserve meeting. The Fed kept interest rate unchanged and also reiterated its willingness to take all possible measures to support the economy.
Also weighing on the dollar are concerns about the health of US economy amid mixed economic data, rising virus cases and lack of consensus amongst policymakers over additional stimulus measures.
US pending home sales data, released on July 29, was better than expected but came a day after disappointing consumer confidence data.
Growing US-China tensions have added to the challenges facing the global economy. Concerns about falling demand due to record high prices in key consuming countries like India and China are also weighing on gold prices.
On July 29, ETF outflows showed some profit-taking in gold. Gold holdings with SPDR ETF fell by 1.17 tonne to 1241.95 tonne, the first decline since July 10.
Worries about economic recovery also dampened the outlook for silver’s industrial demand. Silver holdings with iShares ETF rose by 188.29 tonne to a record high of 17800.01 tonne.
In the last few days, gold has rallied sharply but the momentum is weakening amid no fresh triggers from Fed. We may see some corrective dips.
Silver has been struggling to regain momentum but is still holding near the key $24 level, which shows the trend is still positive. But with no fresh cues, there is a possibility of profit-taking by investor’s hence, corrective dips can’t be ruled out.
Base metals on LME were traded sideways to higher after ending the previous day on a higher note.
Lending support to prices is modest gains across equity indices and weakness in the dollar amid Fed’s dovish stance.
The Fed’s loose monetary stance weighed on the dollar, with the dollar index hitting more than two-year low of 93.275 and ending 0.3 percent lower on July 29.
The gains in metals pack may, however, be capped amid surge in coronavirus cases that threaten to derail the nascent recovery. The upside may also be capped amid US-China tensions.
On the fundamental front, copper may seek support from falling inventories at LME warehouses along with signs of tightness in physical market as is evident from backwardation between LME cash to three-month spread. However, the upside may be capped by easing of worries over supply disruption from Chile, where potential strikes at two of Antofagasta copper mines have been averted.
In other metals, aluminium and zinc may seek support from lower stocks at SHFE, however, higher stocks at LME may cap the upside.
Aluminium stocks at LME are hovering near April 2017 high while those of zinc have risen more than 65,000 tonne in past eight sessions and at 187,475 tonne, stand at their highest level since October 2018.
In case of lead and nickel, higher stocks at both LME and SHFE warehouses may weigh on the prices.
The metal pack may witness choppy trade during the day, tracking mixed cues, however, the overall bias for most metals may be positive amid weakness in the dollar.
After the Fed’s decision, the focus will be on GDP data from the US and Europe. Q2 was the worst period and GDP data will be watched for the intensity of the effect of the viral outbreak.
Both the US and German are expected to report a sharp drop in GDP and this has been factored in. Deviation from market expectations may impact currency movement.
(The author is VP- Head Commodity Research at Kotak Securities.)
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