COMEX gold trades mixed near USD 1890/oz after a 0.4 percent decline on September 30. Gold witnessed a sharp rebound after taking support near USD 1850/oz level but the price is struggling to hold above the key USD 1900/oz level. Mixed trade in equity markets and the US dollar has led to choppy trade in gold as well.
Financial markets are volatile as market players await more clarity on US stimulus deal, UK-EU Brexit negotiations and whether increasing virus cases especially in Europe may result in another lockdown. US policymakers have increased efforts to reach a consensus on size and scope of the stimulus package, however, uncertainty will prevail until a decision is reached.
Virus cases continue to rise forcing countries to impose more restrictions however most countries would want to avoid complete lockdowns owing to its economic implication. Market players are also worried that the US Presidential election could be a close contest after both Presidential candidates sparred vigorously in the first debate earlier this week.
The US dollar index was mixed yesterday as support from upbeat economic data was offset by reduced safe-haven buying. US ADP jobs report, Q2 GDP growth estimate, Chicago PMI and pending home sales data released yesterday was well above market expectations. Lack of direction is also evident from ETF flows.
Gold holdings with SPDR ETF were unchanged for a second day at 1268.888 tonnes. Gold has retreated after testing the USD 1900/oz level and while choppy trade is likely, the general weakness in US dollar may continue to support gold prices.
COMEX Silver reversed early losses to trade modestly higher near USD 23.6/oz level. Silver trades mixed today after a sharp 3.9 percent decline yesterday. Silver came under pressure yesterday as gold retreated from recent highs on the back of improved risk sentiment. ETF outflows also show weaker investor buying interest at current levels.
Silver holdings with iShares ETF fell by 46.3 tonnes to 17079.43 tonnes, second consecutive decline and the lowest level in a week. However, supporting silver price is improving outlook for industrial demand amid some upbeat US and Chinese economic data.
Silver may witness choppy trade as gold and industrial metals struggle for direction while investor buying remains low however we may see buying interest emerging at lower amid general strength in gold prices.
Base metals on LME trade in a narrow range in early trades today after noting mixed movement yesterday. The metals pack is witnessing choppy movement amid lack of fresh cues as the Chinese market are closed for weeklong holiday in observance of National Day; trading will resume on 8 October. Furthermore mixed factors on macro front too have led to choppy movement in base metals.
On a positive note, metals continue to seek support from demand optimism from top consumer China along with recent retreat in the US Dollar Index. In top consumer China, a recent spate of positive data indicates improving pace of economic recovery in the region which in turn fans demand optimism from the region.
Data from the nation yesterday showed that factory activity continued to expand at a faster pace in September. The gains may, however, be capped amid lingering worries due to surging virus cases globally and a slowdown in the global recovery. On the virus front, global virus cases continue to rise with fears growing over the second wave of infections across European nations.
Furthermore, on the fundamental front, copper prices may seek support from lower stocks at SHFE warehouses and decline in copper production from Chile. As per Reuters report, Copper output in Chile, the world’s top producer of the red metal, fell 5.5 percent year-on-year to 489,461 tonnes in August. However huge build-up in stocks at LME warehouses in past three days along with flipping of LME Cash to three-month spread from backwardation to contango may cap the upside.
Copper stocks at LME have risen by 91,975 tonnes in past three sessions having more than doubled from last week. For the day, the metals pack may witness mixed movement amid mixed cues, however, overall bias for most may be positive amid a retreat in US Dollar and demand optimism from China. Further cues may come in from manufacturing PMI data from the US, UK and Eurozone wherein upbeat data may further fan demand hopes.
The author is VP- Head Commodity Research at Kotak Securities
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