Gold may witness choppy trade as market players assess virus situation, US-China tensions and additional stimulus measures but general bias may be on the upside owing to increasing challenges facing global recovery.
Commodities were largely trading sideways to lower in the international market, tracking a mixed trend in equity indices and rebound in the US dollar. Comex gold was trading mixed near $1,810/oz after gaining 0.4 percent the previous week.
Gold continued to trade in a range near $1,800/ as the market awaited fresh triggers. The wait-and-watch trend was also evident from unchanged ETF holdings.
Gold holdings with SPDR ETF were unchanged for a third day at 1,206.888 tonnes, the highest level since April 2013. In the last few days, gold has moved largely in tandem with commodities and equities as market players have switched between riskier assets and the safety of the US dollar.
The US dollar index was on a firmer footing during the day, after hitting over 1-month low in the previous week, as growing worries about global economy amid rising virus cases, increased geopolitical tensions relating to China and uncertainty about EU recovery fund enhanced its safe-haven appeal.
Global virus cases have been rising steadily, however, a fresh surge in countries like the US, Australia and Japan has forced them to reimpose some restrictions and rollback reopening plans.
The US and China have been at loggerheads over various issues and are taking measures against each other while tensions are also rising between China and other countries.
Talks on a proposed 750-billion euro EU recovery fund continued amid differences over how much of it should be distributed through grants and how much should be set aside for low-interest loans.
Adding to the uncertainty, minutes of the Bank of Japan meeting showed that many board members were gloomy about the country’s recovery as the impact from the outbreak deepened.
Gold may witness choppy trade as market players assess virus situation, US-China tensions and additional stimulus measures but general bias may be on the upside due to growing challenges for the global economy.
After gaining 0.1 percent in the previous week, NYMEX crude was trading moderately lower near $40.5/bbl. The near-flat close in crude for the last two weeks shows a lack of direction in the market. Price has managed to hold above $38 but is struggling to sustain above $41.
The mixed trade is due to a lack of clarity on the impact of fresh surge in virus cases on the global recovery and the production policy of the US and OPEC.
Directionless trade was also evident in equity markets as players assed virus cases and widening rift between the US and China against economic data and corporate earnings that showed that recovery was picking up.
Market players are also trying to gauge additional stimulus measures by central banks and governments in the face of rising risks.
Fed’s downbeat outlook has kept hopes of continuing stimulus measures alive. Similarly, on the supply side, US crude production has stabilised near 11 million barrels per day while the decline in rig count has slowed down. The number of rigs drilling for crude fell by 1 to 180 rigs, lowest since 2009.
OPEC and allies have decided to reduce the pace of production cuts from 9.7 million barrels per day to 7.7 million barrels per day, starting August. Actual cuts are expected to be higher as some producers may cut more to compensate for their overproduction in the last few months. Crude is supported by reports of lower production by Norway.
A Reuters report said Norway’s crude oil output fell 12 percent to 1.54 million barrels per day in June, 4.1 percent below the official forecast which corresponded to a production cap of 1.61 million bpd set by the government.
However, weighing on the price is lower Japanese imports. As per Reuters reports, Japan’s oil imports fell 14.7 percent in June from the same month a year ago.
Crude may continue to witness listless trade unless it breaks out of the $39-41 range but the general bias may be on the downside amid shaky risk sentiment.
The focus may continue to be on the economic data and corporate results from major economies, development relating to the virus outbreak and the US-China tensions.
(The author is VP- Head Commodity Research at Kotak Securities)Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own, and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.