Gold has breached past the USD 1800/oz level paving way for more gains however the up move has come without any fresh new triggers hence one needs to be cautious and wait for a lower level to create fresh long positions.
COMEX gold trades mixed near $1,800/oz after a 1.1 percent gain yesterday when it hit a high of $1,804/oz, the highest level since 2011. Gold was consolidating in a narrow range for last few sessions but got a thrust to break past the key $1,800/oz level benefitting from month-end and quarter-end position squaring and increasing concerns about virus cases and heightened US-China tensions.
Global virus cases have been on the rise but a sharp jump in cases in the US and other countries like China, Australia has unnerved market players that fresh restrictions may slow down the nascent economic recovery. Meanwhile, the World Health Organization cautioned that the worst of the coronavirus pandemic is yet to come. Also weighing on market sentiment is cautious outlook due to persisting virus risks.
Fed Chairman Jerome Powell on Tuesday warned that the second wave of COVID-19 infections could undermine consumer confidence again, as per a MarketWatch report.
Mixed economic data shows economic activity is picking up but challenges persist. US consumer confidence data released yesterday was better than expectations but Chicago PMI failed to meet estimates. Japan’s manufacturers' confidence sank in the second quarter to levels not seen since 2009 while South Korean exports fell for the fourth consecutive month. Challenges to the US and global economy also make a case for central banks and governments to continue with stimulus measures which is also supportive for gold.
Gold rallied despite gains in the US equity market, lack of fresh investor inflows and weaker consumer demand which raised some red flags about the sustainability of the gains. US and global equity markets are still holding on to most of the gains noted in the last few weeks amid expectations that governments may avoid stringent measures to limit virus spread.
Gold holdings with SPDR ETF were unchanged at 1178.89 tonnes. Weaker consumer demand is evident from a sharp drop in Chinese gold imports. Gold has breached past the USD 1800/oz level paving way for more gains however the up move has come without any fresh new triggers hence one needs to be cautious and wait for a lower level to create fresh long positions.
Most Base metals on LME, barring Copper, trade in a narrow range in early trades today after noting mixed movement yesterday; Copper prices, however, are up more than 1 percent. The metals pack is witnessing choppy movement as support due to optimism over recovery in global economic health and stimulus measures is being offset by a surge in cases in the US and lingering US-China tensions. On the global growth front, the recent spate of mixed to positive data from major economies viz. US, China and the Euro Zone are fanning hopes that the worst may be over. Also supporting prices is choppiness in the US Dollar Index.
However, on a weaker note, steady rise in coronavirus cases globally and worries of the second wave of infections in the US is capping the upside. Further capping the upside is lingering tensions between US-China. Meanwhile, on fundamental front, Copper prices may continue to seek support from falling stocks at exchange warehouses along with signs of robust demand in China and supply worries, especially from Chile. Copper on warrant stocks at LME warehouses further slid to 111,650 tonnes yesterday; the lowest level since January 17 while stocks at SHFE hit lowest in more than 17 months. Also, as per Reuters report, Freeport Indonesia’s production of copper concentrate and copper ore were both below its initial targets this year.
In other metals, Aluminium and Zinc prices too may seek support from lower stocks at SHFE warehouse however higher stocks at LME and rise in output from China may cap the upside. Lead stocks too may seek support from recent slide in socks at LME however jump in inventory at SHFE and demand worries may cap the upside.
Lastly, the upside in Nickel prices may be capped amid higher stocks at both LME and SHFE warehouses. The metals pack may witness choppy movement today amid mixed cues however overall bias for most metals may be positive tracking hopes of a revival in global health while Copper prices may also seek support from upbeat fundamentals.
The author is VP- Head Commodity Research at Kotak SecuritiesDisclaimer: 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.