COMEX gold is trading moderately higher near USD 1890/oz after a 0.9 percent gain on September 28. Gold fell sharply last week and tested the lowest level since July. However, it managed to hold near the key level of USD 1850/oz level and rebounded.
The recovery in gold price was triggered by a sharp correction in US dollar index. The US dollar index hit July highs last week but corrected on September 28 as gains in equity market reduced its safe haven demand.
US DJIA index rose 1.5 percent on September 28 reversing most of the losses noted last week. Risk sentiment improved amid US policymakers’ efforts to reach a consensus over fresh fiscal stimulus measures and hopes that UK-EU talks may help reach a deal on post-Brexit terms.
The US dollar weakened also amid positioning ahead of key events relating to the US which includes first Presidential debate, some important economic indicators like non-farm payrolls, GDP etc., comments from various Fed officials and efforts to reach a fiscal deal. Recovery in gold price also revitalized investor interest.
Gold holdings with SPDR ETF rose by 2 tonnes to 1268.88 tonnes yesterday. Improved consumer demand in India is also evident from narrowing spread between domestic and international price. Gold has bounced back from key levels helped with a correction in US dollar however the question is how long can it continue.
As we have seen in last few days trend in US dollar is the key factor affecting gold and the US currency has been seen as the preferred safe haven asset. Risks to global economy are omnipresent in form of rising virus cases, uneven economic recovery, increased US-China tensions, Brexit uncertainty, delay in fresh fiscal stimulus in US and uncertainty relating to US Presidential elections and these factors may keep US dollar supported however challenges to health of US economy could limit upside. With some signs of correction in US dollar, gold could see some extended gains however USD 1900-1910/oz will be a key barrier to cross before bulls re-enter with full vigor.
NYMEX crude trades weaker but in a range above USD 40 per barrel after a 0.9 percent gain yesterday. Crude oil along with other commodities edged up yesterday as US dollar index shed some of its recent gains while US and global equity markets edged up.
Amid other factors, crude gained support from strike concerns relating to Norway, clashes between Armenia and Azerbaijan, expectations of another decline in US crude oil stocks and OPEC’s willingness to take additional measures if needed. On other hand, weighing on price is increasing supply from Libya following lifting of blockade in some parts last week.
Rise in US crude oil rig count also shows that producers are not keen on cutting more output. Highlighting risks to future outlook, Russian Energy Minister Alexander Novak said the global oil market had been stable for the past few months, but warned of the risks of a second wave of COVID-19 cases, as reported by Reuters.
Crude has been trading in a narrow range near USD 40/bbl for last few sessions and this trend may continue due to mixed weather factors however general bias may be on the upside owing to lower US crude stocks and OPEC’s production policy and relative stability in equity markets.
The author is VP- Head Commodity Research at Kotak Securities
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