We may see sideways to negative trade ahead of inventory report as market player’s focus on US crude production and rising stocks at Cushing.
COMEX gold December contract traded 0.7 percent higher on August 5 near USD 2035/oz after a sharp 1.7 percent gain on August 4. Spot gold hit a record high level of near USD 2031/oz on August 4 and is currently trading near USD 2016/oz. In domestic market, MCX gold August contract hit a high of Rs 54560/10 gram August 4, the highest level on record for a first month contract.
Gold has been on an up move for the last few days and has now broken past the key USD 2000/oz opening way for further gains. Gold remains supported by persistent weakness in the US dollar, strong investor interest and safe haven buying amid rising virus cases globally and increased US-China tensions.
The US dollar, after a brief rebound, slumped again August 4 amid lower bond yields, diverging economic and virus situation in US and Europe and political wrangling over additional stimulus.
Investor buying remains strong despite record-high price. Gold holdings with SPDR ETF rose by 9.35 tonnes to 1257.733 tonnes, the highest since Feb.2013. Virus cases are rising globally forcing countries to re impose restrictive measures hurting economic activity. Gold has been rising for last few days and while there are positive factors, it is largely momentum buying and corrective dips might attract more buying.
COMEX Silver trades little changed near USD 26/oz after a sharp 6.6 percent rally yesterday. Silver hit a high of USD 26.545/oz, the highest level since April 2013. Silver rallied sharply yesterday as weakness in US dollar lent support to both gold and industrial metals. Upbeat manufacturing data also improved outlook for industrial demand.
ETF inflows also showed some pick up in investor buying, however, the pace was modest. Silver holdings with iShares ETF rose by 8.74 tonnes to 17649.43 tonnes, after three days of outflows. Silver has bounced back after consolidating near $24/oz level and is now near 2013 highs. While the momentum still looks positive, gold is near record high levels and if it struggles to extend the gains, silver may also turn choppy hence aggressive buying in silver should be avoided.
NYMEX crude trades marginally lower near USD 41.5/bbl after a 1.7 percent gain yesterday. Crude trades under pressure as market players position for weekly inventory report. API weekly report was largely positive. API noted a bigger than expected 8.587 million barrels decline in US crude oil stocks and a bigger than expected decline in gasoline stocks. Distillate stocks however rose much more than expectations while crude stocks at Cushing, the delivery terminal for NYMEX crude futures, rose further.
Further cues may come from EIA report due later today. US crude stocks are still at elevated levels despite the recent draw while market players are worried about rising stocks in Cushing which have already jumped to May highs. Amid other factors, crude along with other commodities remains supported by weakness in US dollar and gains in US equity market.
US equity market rose 0.6 percent yesterday amid better than expected factory orders data and some signs of stability in virus spread and hopes of additional stimulus even as policymakers struggled to reach consensus.
Crude also rose on increased tensions in Middle-east after a massive blast in Beirut. However, weighing on price is rising virus cases globally which is forcing states to impose restrictions. Expectations of higher supply from OPEC with effect from August has also pressurized crude price. Despite the gains in last two sessions, crude is still struggling to build momentum above USD 42/bbl. We may see sideways to negative trade ahead of inventory report as market player’s focus on US crude production and rising stocks at Cushing.
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.