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Last Updated : Aug 04, 2020 02:43 PM IST | Source: Moneycontrol.com

Gold likely to show positive momentum amid challenging global economy: Kotak Securities

Gold has turned choppy amid mixed factors, however, the general momentum is still positive given the challenges to global economy and strong investor interest.

Moneycontrol Contributor

Ravindra Rao

COMEX gold December contract trades moderately higher near USD 1,990/oz after a flat close on August 3. Spot gold trades little changed near USD 1,977/oz off the record high level set on August 3.

In domestic market, MCX gold August contract hit a high of Rs 54,199/10 gram on August 3, the highest price on record for a first month contract. Gold continues to hold near record high level supported by safe haven buying amid increasing challenges to global economy in form of rising virus cases and increased US-China tensions.

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Virus cases have been rising globally and this has forced countries to reimpose restrictions hampering economic activity. As per Reuters report, the World Health Organization warned on Monday that there might never be a "silver bullet" for COVID-19 in the form of a perfect vaccine and that the road to normality would be long. US-China tensions have intensified further as US targets Chinese applications citing security threats.

ETF inflows also show pick up in investor buying. Gold holdings with SPDR ETF rose by 6.42 tonne to 1248.33 tonne, highest since March 2013. However, weighing on gold price is some recovery in US dollar and some upbeat economic readings from major economies. The US dollar index has managed to recover from May 2018 lows as safe haven buying offset increased concerns about health of US economy.

Manufacturing data released from Asia, Europe and US showed improvement and this improved risk sentiment reducing gold’s safe haven appeal. Also weighing on price are concerns about consumer demand with record high prices and sluggish economic activity in key consuming countries like India and China. Gold has turned choppy amid mixed factors however the general momentum is still positive given the challenges to global economy and strong investor interest.

Base metals on LME trade sideways to lower in early trades today after most ended on a higher note yesterday. On weaker note weighing on the prices is recent modest rebound in US Dollar Index along with simmering US-China tensions. US Dollar Index trades little changed near 93.60 holding onto yesterday’s rebound and is nearly 1 percent off the two year low of 92.539 hit last week. The currency has risen amid yesterday’s upbeat PMI data from US along with decline in pace of new cases in the region and hopes of further stimulus. The downside may however be capped on demand optimism tracking upbeat factory activity data from China to US along with growing hopes of more stimulus.

In US, data on August 3 showed that manufacturing activity accelerated to its highest level in nearly one and half years in July as orders increased despite resurgence in new infections. This followed an upbeat reading from Euro Zone and China’s PMI. Also capping the downside is slowdown in pace of rise in virus cases in US even as global cases continue to rise and worries persist over second wave of infections across Asia, Europe and Australia.

Meanwhile, on fundamental front, Aluminium and Zinc prices may come under pressure amid higher stocks at LME warehouses however steady decline in inventories at SHFE may cap the downside. In other metal, Lead prices may come under pressure amid higher stocks at LME however recent retreat in stock at SHFE along with hopes of rebound in demand for Lead based battery due to recovery in global auto sector may cap the downside. In US, data yesterday showed that total vehicle sales in July jumped to 14.5 million from June’s 13.1 million. Further, in case of Nickel, higher stocks at both LME and SHFE warehouses may weigh on the prices.

Lastly in case of Copper, prices come under pressure amid signs of easing demand in China however lower stocks at both LME and SHFE warehouses along with worries over supply tightness may cap the downside. In China, the Yangshan copper premium has declined to USD 83.50 a tonne, its lowest since June 15 and down from USD 99 two weeks ago; fanning demand worries. (Reuters) However Copper stocks at LME continue to decline and hover near January lows while LME Cash to three-month spread continues to be in backwardation indicating some tightness. The metals pack may witness mixed movement today amid mixed cues however overall bias for most metals may be positive amid demand optimism.

The author is VP- Head Commodity Research at Kotak Securities

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Aug 4, 2020 02:43 pm
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