Bullion to remain in range with bearish bias, copper trend to be bullish

Tapan Patel

Commodity prices traded lower in the previous week, with most commodities in the non-agricultural space witnessing a decline.

Bullion prices failed to continue the bullish momentum despite selling in equity indices. Base metals traded down, paring previous gains on weak global cues. Copper prices were an exception among base metals and ended in the week in the green

Crude oil witnessed heavy selling in the last trading session on lower demand concerns and ample supplies. Natural gas prices also traded weak on capped demand over forecast of cooler weather conditions in the US.

Commodities witnessed selling on a strong dollar recovery on positive economic data from the US. The dollar ended 0.38 percent higher for the week against the major currencies.

Gold and silver prices traded lower as the corrective phase continues. On Comex, spot gold prices fell by more than 1 percent to $1,934 per ounce. Comex spot silver prices shed more than 2 percent, dropping below $27 per ounce for the week.

In India, bullion was hit harder on a sharp appreciation in the rupee. The spot rupee rose by 0.35 percent during the week against the dollar.

The gold ETF holdings declined for the week as holdings at SPDR Gold Shares fell to 1,250.04 tonnes on September 4. The CFTC data showed that the money managers have increased their net long positions by 12.682 lots last week. The short-only positions were the lowest in five weeks.

Bullion failed to sustain on higher levels on stronger dollar over economic recovery optimism backed by better-than-expected economic data from the US and China.

Stronger manufacturing PMI numbers and improved labour market report pressured bullion prices while stimulus hopes from France and the US added pressure.

The dollar recovered against all G-10 currencies which also kept appetite for precious metals lower from the investors. We expect bullion prices to trade in the current range with bearish bias for the short term, with Comex spot gold strong support at $1,890 per ounce and resistance at $1,970 per ounce.

On MCX, October gold prices have near-term resistance at Rs 52,200 per 10 gram and support at Rs 49,000 per 10 gram. Silver prices at have resistance at $28 per ounce and strong support at $25. On MCX, December silver prices have resistance at Rs 72,000 per kg and support at Rs 65,000.

Base metals except copper slipped from the recent highs. LME copper ended in the green at $6,710 per tonne despite selling in riskier assets.

Zinc and nickel prices pared previous gains on dollar recovery. LME zinc declined on widening contango, which signalled supply pressure for the short term.

Copper prices got support from strong fundamentals on improved economic data and lower supplies. Copper inventories at LME fell by 2.6 percent reporting the 17th straight day decline.

LME copper has sustained above the key resistance of $6,645 per tonne on the weekly chart. We expect copper to continue the bullish trend with resistance at $6,950.

On MCX, the September copper contract has important resistance at Rs 535 and support at Rs 517 for the coming week.

Crude saw a heavy sell off on September 4, as benchmark NYMEX WTI prices plunged by more than 7 percent to below $40 per barrel for the week. Prices declined on worries over demand recovery with the end of US summer driving season and ample supplies after OPEC plus nations scaled back the output cuts.

The dollar recovery and fall in global equities also added pressure to the prices in the last trading session. The CFTC data showed that the money managers have cut their net long positions to 16-week low by 17 lots in last week.

Crude oil prices are nearing the lower band of the trading range of $39-43 per barrel. We expect prices to trade sideways to down this week, witnessing minor recovery in early trading with support at $39/37 per barrel and resistance at $43 per barrel.

(The author is Senior Analyst-Commodities at HDFC 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. Credit: MoneyControl

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