Gold may continue to witness choppy trade with key focus on the key USD 1800/oz level however the general bias may be on the upside unless we see a significant improvement in risk sentiment.
COMEX gold is trading moderately higher near $1,785/oz after a 0.5 percent gain in the previous session. Gold tested the highest level since 2011 last week but has since turned choppy in the last few sessions amid its struggle to break past the key $1,800/oz level.
Gold is choppy also as support from increased safe-haven buying and robust investor buying is countered by recent gains in the US dollar and weaker consumer demand.
We have seen a general shift from riskier assets to safe havens amid increasing concerns that rising virus cases may cause countries to consider re-imposing restrictions to limit the spread thereby dampening economic activity. Weaker economic activity may cause central banks and governments to continue with stimulus measures.
Investors continued to seek the safety of gold as is evident from ETF inflows. Gold holdings with SPDR ETF rose by 3.5 tonnes to 1178.89 tonnes on Friday, the highest since April 2013. However, increased risk aversion has also increased safe-haven appeal for US dollar and this has kept a check on the upside in the gold price.
Weakening global outlook has also dented demand expectations putting additional pressure on prices. Gold may continue to witness choppy trade with focus on the key $1,800/oz level, however, the general bias may be on the upside unless we see a significant improvement in risk sentiment.
COMEX Silver trades marginally higher near $18.1/oz after a 0.8 percent gain in the previous session. Firmness in gold price on the back of safe-haven buying amid rising global virus cases has lent support to silver as well. Weaker outlook for global economic activity has, however, dented outlook for silver’s industrial demand.
ETF flows also show a lack of conviction about silver’s price trend. Silver holdings with iShares ETF fell by 14.49 tonnes to 15284.03 tonnes on Friday after a modest inflow a day earlier. Silver may witness choppy trade as risk sentiment affects gold and industrial metals differently however the general bias may be on the upside unless gold corrects sharply.
NYMEX crude has slipped more than 1 percent to trade near $38 per barrel after a 0.6 percent decline in previous session. Crude has been struggling to sustain above the $40 per barrel amid lack of fresh positive triggers. Weighing on crude price are demand concerns as rising virus cases has fueled worries that countries may re-impose restrictions dampening economic activity and thereby demand.
The demand outlook has weakened also amid downbeat growth forecasts by major agencies like IMF. Mixed economic data from major economies also indicates uneven economic recovery. China’s industrial profits data showed some improvement while Japanese retail sales disappointed.
Also weighing on crude price are signs of a slowdown in production cuts. US crude production fell last week after eleven consecutive weeks of decline. Uncertainty about the impact of rising virus cases has caused a rush from riskier assets like equities and commodities to safe havens like gold and US dollar. Meanwhile, US crude stocks surged for the third consecutive week to hit record high levels.
US crude oil rig count has continued to decline however the pace has slowed down indicating that producers are not cutting aggressively. The number of rigs drilling for crude oil fell by 1 to 188 rigs, lowest since June 2009. Rig count has declined for fifteen consecutive weeks but this is the smallest decline so far.
On OPEC front, member states have extended production cuts till July and are working on improving compliance however market expectations are low that they may extend the current deeper production cuts further. Crude oil may witness choppy trade as market players assess virus-related situation and whether or not it will result in fresh restrictions and lockdowns.
The general bias may be on the downside unless we see significant improvement in risk sentiment. The focus may continue to be on economic data from major economies and development relating to virus outbreak and US-China.
The focus may continue to be on economic data from major economies and development relating to the virus outbreak and US-China tensions which may affect US dollar as well as general risk sentiment and thereby trend in bullion and crude oil.The Author is VP- Head Commodity Research at Kotak Securities.