General bias may be on the upside on expectations that deeper production cuts may be extended. The non-farm payroll data from the US will also be watched closely.
Ravindra Rao
Comex gold was trading moderately lower near $1,720 per ounce on June 5 a day after gaining 1.3 percent.
Once again, gold recovered after taking support in the $1,680-1,690 range. The price recovered as the recent rally in global equity markets came to a halt amid lack of fresh cues and amid positioning ahead of US non-farm payrolls data.
US DJIA index ended marginally higher on June 4 after a few days of sharp gains. Market sentiment weakened as the US jobless claims and trade balance data failed to meet expectations. Increased tensions between the US and China also played a part, however, both sides refrained from taking aggressive steps.
The European Central Bank (ECB) on June 4 increased its emergency bond purchase scheme by 600 billion euros, more than 500 billion expected by markets, to 1.35 trillion and extended the scheme to mid-2021.
During a press conference, ECB President Christine Lagarde said the economy was showing signs of bottoming out but called activity still “tepid” and said she expected the bloc’s economy to contract 8.7 percent in 2020.
While gold continued to trade in a broad range, investors ran out of patience.
Gold holdings with SPDR ETF fell by 1.16 tonnes to 1132.205 tonnes, the first decline since May 20. Gold has recovered from lows, however, a sustained rise above $1,750 may not happen unless we see a significant correction in equity markets. One needs to be cautious in taking a long position.
COMEX silver was trading marginally lower near $17.95/oz after gaining 0.6 percent a day earlier.
Silver has corrected sharply from recent highs and is hovering near $18 amid mixed trade in gold and industrial metals.
Supporting the price is the hope of economic recovery boosting industrial demand. However, weighing on prices is easing supply situation as producing states reopen the mining sector.
ETF outflows also show profit-taking by investors. Silver holdings with iShares ETF fell by -20.29 tonnes to 14701.48 tonnes.
Silver may witness choppy trade as gold and industrial metals struggle for direction but we do not expect a sustained rise in gold and this may weigh on silver.
NYMEX crude traded marginally lower but in a narrow range above $37 per barrel after a 0.3 percent rise of a day earlier.
Crude has turned choppy after testing three-month high above $38 per barrel. Uncertainty over OPEC’s production cut deal has led to choppy trade in crude prices.
OPEC and allies' meeting was brought forward to June 4 but it did not go ahead due to lower compliance by some producers.
Crude has rallied in the last few days on expectations that OPEC and allies may extend the current 9.7 million barrels per day for the next few months.
With disagreement over compliance, market players are sceptical if the cuts will be extended. If no deal is reached, OPEC and allies will reduce production cuts to a pace of 7.7 million barrels per day from July.
US-China tensions and civil unrest in the US were countered by hopes of economic recovery amid reopening of economies and stimulus measures by governments and central banks.
Crude may witness choppy trade unless there is more clarity on OPEC’s production policy. General bias, however, maybe on the upside on expectations that current deeper production cut may be extended.
The focus on June 5 will be on US non-farm payroll data, which will reflect on the health of the country’s economy, weekly rig activity and storm activity in the Atlantic.
The payroll data is expected to show some improvement from a month ago and this has been factored in. If the data fails to meet expectations, we could see some correction in the equity market that may benefit gold.
The coronavirus outbreak, US-China tensions and civil unrest in the US, which may also affect the dollar and the risk sentiment, will also be closely watched.
(The author is VP- Head Commodity Research at Kotak Securities.)
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