COMEX gold trades modestly lower near USD 1921/oz after a 0.7 percent gain on October 21. Gold rose as high as USD 1936/oz in intraday trade yesterday but failed to break past the recent high of USD 1939.4/oz and has corrected. Gold remains choppy as market players continue to assess the feasibility of US stimulus deal as well as UK-EU Brexit deal.
US political leaders continue with efforts to finalise a deal, however, the wide differences and nearing Presidential elections have dented expectations of an imminent deal. Amid other factors, gold remains supported by recent weakness in the US dollar, which slumped to 1-month low on reduced safe-haven buying and concerns about the health of the US economy. Rising virus cases and uneven economic recovery has kept concerns high about the health of the US economy.
As per Fed Beige book released yesterday, economic activity in the US continued to increase across all Districts, with the pace of growth characterised as slight to modest in most Districts. Changes in activity varied greatly by sector. Gold is also supported by safe-haven buying amid rising virus cases globally and mixed economic data from major economies. Also supporting price is the forecast of lower production due to the pandemic.
ETF outflows, however, show weaker investor interest. Gold holdings with SPDR ETF fell by 0.6 ton to 1269.346 tonnes, second consecutive outflow and lowest since September 30.
Gold may witness choppy trade as market players react to development relating to US stimulus and Brexit negotiations and virus situation. We, however, maintain buy on dips view as increasing challenges to the global economy may increase gold’s safe-haven appeal while the US dollar may remain pressurised by concerns about the health of the US economy.
Base metals on the LME mostly ended sharply higher yesterday. The metals pack came under pressure in the early session today as prices took a breather after the recent steep run-up. Also, weighing on the prices is global risk aversion amid doubts over the US stimulus package. Putting further pressure on the prices is renewed worries over US-China tensions along with lingering worries over surging virus cases globally and pause in US Dollar Index decline.
Meanwhile, on the currency front, US Dollar Index trades 0.1 percent higher today after yesterday’s 0.5 percent decline. The decline in currency has paused amid renewed uncertainty over US stimulus and fears of an escalation in US-China tensions. The downside, however, remains capped amid robust demand outlook from top consumer China.
In China, a recent spate of upbeat economic data continues to signal of improving pace of recovery in the nation thereby fanning demand outlook for metals. Furthermore, on fundamental front, Copper prices may come under pressure amid recent buildup in stocks at LME warehouses along with signs of easing tightness in the physical market, however, worries over supply disruption from Chilean copper mine and jump in Chinese Copper may cap the downside.
On the supply front, Chile's Candelaria copper mine suspended operations from Tuesday after unions called for strikes while workers at Codelco took to the streets on Monday to reject layoffs, Reuters reported. Furthermore, Chilean miner Antofagasta said full-year copper output would be at the lower end of its original guidance of 725,000-755,000 tonne.
In case of Nickel, the metal may come under pressure amid higher stocks at LME warehouses however the downside may be capped amid expectations of robust demand from stainless steel mills in China and Indonesia along with the expectation of narrower surplus next year by INSG.
The metals pack may witness choppy trade today amid mixed cues. Major focus for the day may remain on development related to US stimulus talks and its impact on broader financial markets. Further cues may come in from economic data from the US and Euro Zone along with virus related development and Brexit talks and its impact on in US Dollar as well as the global sentiment.
The author is VP- Head Commodity Research at Kotak Securities
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