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Last Updated : May 15, 2020 01:41 PM IST | Source: Moneycontrol.com

Silver to head higher; crude likely to remain choppy: Kotak Securities

Crude oil may witness choppy trade as the grim scenario is counterbalanced by hopes of an improved outlook but the general bias may be on the upside.

Moneycontrol Contributor

Ravindra Rao

Gold edged up sharply on safe-haven buying as weak economic data, downbeat outlook, US-China tensions, fear of second wave of infection and warnings that the pandemic may not get over soon weighed on market sentiment.

US weekly jobless claims rose by 2.981 million, bringing the total unemployed to about 36.5 million since COVID-19 pandemic began.

Continuing ETF inflows also show robust investor interest.


Gold holdings with SPDR ETF rose by 12.57 tonnes to 1104.71 tonnes, highest since April 2013. However, weighing on gold price is firmness in US dollar post Fed’s clarity that it may not use negative interest rate as a policy took.

Gold has risen in the last few sessions, however, we are yet to see a break above the $1750/oz.

Comex silver has gained more than 1 percent to trade near $16.36/oz after a sharp 3.1 percent gain yesterday.

Silver has benefitted from sharp rise in gold price on back of safe haven buying and hopes of additional stimulus measures supply concerns rose amid signs that Mexico may delay start in mining activity.

Earlier this week, the Mexican government said it would classify mining an essential activity, paving the way for a May 18 restart. But Mexico's mining undersecretary Francisco Quiroga said the mining sector should re-start activities on June 1, Reuters reported.

ETF investors, however, moved to sidelines awaiting fresh cues. Silver holdings with iShares ETF were unchanged for the second day at 13177.25 tonnes, highest on record.

Silver has now broken past the $16/oz level, resulting in extended gains. We expect the positive momentum to continue amid strong investor interest and general strength in gold.

Base metals on LME were trading with a positive bias in early trade after ending on a lower note on May 14.

Lending support to the prices is optimism over pick up in global economic activity, as more nations look to lift lockdown restrictions along with growing expectations of more stimulus from major economies to revive growth.

Most base metals may seek support from declining stocks at SHFE warehouses while metals like zinc may seek support from signs of tightness in the physical market, as is evident from LME Cash to three-month spread flipping into backwardation.

The gains may, however, be capped amid higher stocks of most metals at LME and signs of ample supplies in the physical market as is evident from wide contango in the case of all metals except zinc.

For copper, the gains may be capped amid a huge jump in stocks at LME warehouses on May 14 along with the expectation of an improving supply from Peru.

The upside in nickel, too, maybe capped amid easing worries over supply disruption from the Philippines along with higher stocks at LME.

Copper stocks at LME jumped 55,650 tonnes on May 14, the second-biggest daily inflow on record in data going back to 1997, as reported by Bloomberg.

After days of a range-bound movement, crude oil edged up, gaining support from inventory report and International Energy Agency’s (IEA) improved outlook.

IEA once again forecasted a record drop in demand in 2020, though it trimmed its estimate for the fall, citing measures to ease lockdowns.

With the improvement in demand later this year, IEA expects crude stockpiles to shrink by about 5.5 million barrels per day in the second half. US oil companies have intensified spending and drilling-cuts, fuelling expectations of lower output.

OPEC and allies have begun to cut output as part of the deal while Saudi and some other members have indicated the possibility of additional cuts.

Reflecting efforts to tighten the market, Saudi Arabia’s oil giant Aramco has slashed by up to 30 percent of its crude oil allocations to at least three buyers in Asia for June, compared to what customers had nominated, Reuters said.

Crude oil may witness choppy trade as the dire outlook is balanced by hopes of improved outlook but the general bias may be on the upside amid efforts by producers to tighten the market.

(The author is VP- Head Commodity Research at Kotak Securities.)

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First Published on May 15, 2020 01:41 pm