With the dollar index attempting some recovery, gold may see some correction but is likely to hold the $2,000-1,980 level.
Ravindra Rao
Comex December gold contract was trading moderately lower at around $ 2,025/oz on August 11 after gaining 0.6 percent in the previous session.
Gold, which surged to record high in the week gone by, was consolidating amid lack of fresh cues as was evident from mixed trade. Weighing on gold price was the dollar’s attempt to recovery after slumping to two-year low.
The US dollar index rose for the second day on August 10 as US-China tensions increased its safe-haven appeal. The dollar also benefitted from better than expected US labour data and hopes that the American policymakers would overcome differences to reach a stimulus deal.
ETF inflows also stalled as investors awaited more clarity on price direction. Gold holdings with SPDR ETF were unchanged on August 10 at 1262.116 tonnes after a minor outflow a day earlier. Holdings with the fund surged to February 2013 high.
Gold also softened on some upbeat data from major economies, easing worries about global growth. However, concerns about rising virus cases and increased US-China tensions supporter the price.
Global virus cases have surpassed 20-million mark with no signs of containment and this may force countries to continue with restrictions that may hamper recovery.
Gold has rallied sharply in last few days, pushing the metal deep into overbought territory. With the dollar index attempting some recovery, we may see some correction in gold but it is likely to hold the $2,000-1,980 level amid global concerns.
On LME, base metals were choppy in early trades after a mixed movement the day earlier. Confluence of both positive and negative factors on macro as well as fundamentals front is leading to choppy movement.
On weaker note, escalating tensions between US-China along with uncertainty over further fiscal stimulus in the US weighed on gold prices.
On the US-China front, tensions have risen following tit-for-tat sanctions ahead of talks at the weekend to review first six months of Phase 1 trade deal.
Also weighing on prices is stability in the dollar and continuing surge in coronavirus cases which in turn threaten to derail the nascent pace of recovery in global growth. However on positive note lending support is demand optimism especially from top consumer China.
Recent spate of upbeat data especially from top consumer China along with improvement in factory activity data from all major economies is fanning hopes of uptick in demand for metals.
On August 11, data from China showed that auto sales in July climbed 16.4 percent to 2.11 million from a year earlier, the fourth consecutive month of gains as the world's biggest vehicle market comes off lows hit during the country's coronavirus lockdown.
On fundamentals front, copper prices may come under pressure by recent rebound in stocks at SHFE warehouses along with recovery in output from Peru. However, lower stocks at LME warehouses along with jump in China’s copper imports to record high and worries over supply tightness in physical market may continue to lend support.
Copper stocks at LME slipped to 114,375 tonnes, lowest since March 2019 of which cancel warrants or material already marked for delivery stands at almost 60 percent.
In other metals, aluminium prices may be pressurised by signs of ample supplies in physical market in the face of weak demand but recent retreat in stocks at LME along with lower stocks at SHFE may cap the downside. Aluminum stocks at LME are retreating from April 2017 high hit last month while those at SHFE hover near January 2020 lows.
Both zinc and lead may come under pressure amid rising stocks at LME but falling inventories at SHFE may cap the downside.
A rebound in global auto sales may lend support to lead prices. Zinc stocks at LME hover near October 2018 highs while those at SHFE are at January 2020 lows.
Lead stocks at LME hover near December 2018 highs while those at SHFE are retreating from January 2020 high hit in July.
Lastly, nickel may be pressurised by higher stocks at both LME as well as SHFE warehouses.
The metal pack may witness a mixed trade during the day amid mixed cues however overall bias for most metals will be positive amid demand optimism. Further cues may come in from economic data from the US, the UK and Euro Zone and its impact on the dollar.
(The author is VP- Head Commodity Research at Kotak Securities)
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