Crude may witness choppy trade amid mixed factors but the selling pressure may emerge at higher levels amid persisting demand concerns and US-China tensions.
Comex December gold contract was trading about 0.5 percent higher at around $2,040 per oz after a 2 percent decline in the previous session, the first in six trading sessions.
Gold has rallied sharply in the past two weeks and was overbought, making it vulnerable to profit-taking. The selloff on August 7 was triggered by better-than-expected US jobs report that the dollar index recovered from two-year lows.
Gold holdings with SPDR ETF fell by 5.84 tonnes to 1262.116 tonnes on August 7 in the first decline since July 29.
Gold, however, bounced back on August 10 as the dollar turned choppy again with market players awaiting more clarity on the stimulus front. US policymakers failed to reach a consensus ahead of the self-declared deadline of August 7. Also supporting price is increasing tensions between the US and China.
Globally, virus cases have continued to surge, fanning worries that restrictions in some form will remain in place that will slow down the pace of economic recovery.
Despite the fall on August 7, gold was holding above the key $ 2,000 level, which shows that the momentum is still positive. The fall did indicate that the metal was priming for correction, with the US dollar as the key factor. If the American currency manages to extend the recovery, gold may fall further.
Comex Silver rose more than 2 percent and was trading near $28.15 after a sharp 3 percent decline in the previous session. Silver fell sharply on August 7 as a rebound in the dollar pressurized commodities at large.
ETF outflows also showed some profit-taking by investors. However, price continues to remain supported by signs of improvement in manufacturing sector, which may boost industrial demand for the metal.
Silver surged to 2013 highs in the previous week on the back of sharp gains in gold and firmness across commodities. The momentum, however, broke as price failed to break past the $30 and as gold prices corrected sharply.
While overall momentum still looks positive, we expect choppy trade in the near term unless there are fresh positive triggers.
NYMEX crude has risen over 1 percent to trade near $ 41.8 per barrel after a 2.4 percent gain the previous week.
Crude tested March highs in the week gone by but was struggling to build on the momentum amid mixed factors. Supporting crude price is a decline in the US crude oil rig count, Iraq’s commitment to additional cuts, US jobs report and choppiness in the dollar.
Weighing on prices is demand concerns amid rising virus cases. Increased US-China tensions also fuelled concerns about Chinese purchases about US energy goods.
Also weighing on price is expectations of higher supply from US and OPEC and bigger than expected rise in jobs.
The dollar index was struggling as more clarity is awaited on stimulus front. On OPEC front, producers are from August 1 to reduce production cuts to 7.7 million bpd. The actual reduction may be higher as some producers like Iraq may cut more to compensate for its overproduction earlier.
As per a Reuters report, Iraq has said it would cut its oil output by a further 400,000 barrels per day in August and September.
In the US, crude production has steadied after a sharp fall in last few months while rising crude stocks at Cushing terminal highlights increasing glut in the region but a drop in rig count shows weaker production interest.
Drilling rigs targeting crude oil in the US fell by 4 to 176, the lowest since July 2005 and a drop of 74 percent over the past 21 weeks.
Crude may witness choppy trade amid mixed factors but we expect selling pressure to emerge at higher levels amid persisting demand concerns and US-China tensions.
(The author is VP- Head Commodity Research at Kotak Securities)Disclaimer: 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.