Global commodities trade sideways tracking gains in equities, weakness in USD

Ravindra Rao

COMEX gold traded higher on June 16 by 0.5% near $1735/oz after a 0.6% decline on June 15. Gold came under pressure yesterday as stability in equity markets reduced its safe-haven allure. US equity markets ended 0.6% higher yesterday after four days of consecutive decline.

Risk sentiment improved on Fed’s stimulus measures to boost economic growth and expectations that major countries may avoid further lockdown despite rise in cases. Fed said it is expanding the scope of its $750 billion emergency corporate debt loan facility to include individual corporate bonds, while also scrapping some earlier restrictions for potential borrowers.

White House economic adviser Larry Kudlow on Sunday played down the increase in coronavirus cases and said the country “has got to open" (MarketWatch report).

Ravindra Rao

Head - Commodity Research|Kotak Securities

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However, supporting price is strong investor interest and persisting worries about virus outbreak amid increasing cases globally and fear of second wave of infections amid rise in cases in US and China. Gold holdings with SPDR ETF were unchanged yesterday at 1136.219 tonnes, highest since 2013.

As per a Reuters report, Beijing has recorded dozens of new cases in recent days, while new infections in record numbers swept through more US states. Also supporting price is loose monetary policy stance of major central banks. Fed last week indicated that interest may remain low until at least 2022. The central bank is also taking measures to boost economic activity.

Other central banks may also keep option open for additional measures until economic activity revives. Once again gold corrected after failing to sustain above $1750/oz but has managed to hold above $1700/oz level. We may see choppy trade as market players assess possibility of further lockdowns in case of rising virus infections in a number of countries. The general bias may be on the upside unless we see a sustained recovery in equity markets.

Base metals on LME trade with a positive bias in early trade June 16 after noting mixed movement yesterday. Lending support to the prices is improvement in global risk appetite as is evident from rebound in global equity indices tracking further support from US Fed. The US central bank yesterday announced tweaks to its bond buying program, widening the range of eligible assets to include all US corporate bonds that satisfied certain criteria, as reported by Reuters. Index.

The US Dollar trades 0.2% lower near 96.54 June 16 following yesterday’s 0.6% decline. The currency has come under pressure amid further easing by US Fed along with lingering worries over US growth. The gains may, however, be capped amid growing fears of second wave of infections in nations like China, US and Japan along with overall rise in number of cases globally.

Meanwhile in the US, new outbreaks have raised questions about the pace of reopening the economy. Also capping the upside is lingering worries over global economic health which in turn has fanned concerns over demand outlook for the metals. Recent spate of mixed to weak data from major economies along with bleak growth forecast by organizations like IMF, World Bank and OECD continue to fan growth worries.

Central bank's comments, US and European economic data and development relating to virus outbreak and US-China tensions may affect risk sentiment as well as trend in US dollar. Bank of Japan monetary policy decision will set the tone for other central bank meetings this week. Fed Chairman Jerome Powell’s comments may reflect further upon health of US economy and Fed’s monetary policy stance.

The author is VP- Head Commodity Research at Kotak Securities