COMEX gold is trading moderately higher near $1,937/oz after a 2.1 percent decline last week. Gold fell last week after failing to sustain above the $2,000/oz level weighed down by some recovery in US dollar index, slack ETF buying and weaker consumer demand.
However, the yellow metal bounced back today as weakness in equity markets increased its appeal as an alternative investment. US equity market ended lower for a second day on September 4 bringing a halt to the relentless rally seen in the last few weeks. It was a long due correction and triggered by mixed economic readings and concerns about additional stimulus measures and rising virus cases.
The US dollar index rose to 1-week high last week on ECB’s concern about euro’s strength, Brexit uncertainty and hopes of a continuation of aggressive monetary and fiscal policy in Japan under new leadership, but has come off the highs amid Fed’s dovish stance and lower bond yields. Also, supporting gold price is rising virus cases globally and increased US-China tensions. On the other hand, directionless and volatile trade in gold has pushed investors to the sidelines.
Gold holdings with SPDR ETF were unchanged at 1,250.042 tonnes. Consumer demand remains weak as is evident from discount in Indian and Chinese markets.
Gold may witness choppy trade as US dollar and US equity market struggle for direction, however, buying might re-emerge at lower levels amid persisting challenges to the global economy.
Base metals on LME traded with a positive bias in early trade today after most ended on a lower note last week. One positive note lending support to the prices is demand optimism especially from top consumer China along with hopes of continuing monetary as well as fiscal stimulus from major economies and signs of progress on virus vaccination front.
On the demand front, a recent spate of upbeat data from top consumer China along with improvement across global factory activity continues to fan demand outlook for base metals. The gains may, however, be capped amid a recent rebound in US Dollar Index along with simmering US-China tensions and surging coronavirus cases globally which in turn threaten to derail the nascent pace of recovery in global growth.
US Dollar Index trades more than 0.1 percent higher today following last week’s 0.4 percent gains. On a positive note, the currency is seeking support from last week’s factory activity data along with weakness in common currency Euro and UK’s pound. The gains, however, remain capped amid Fed’s dovish stance.
Meanwhile, on the fundamental front, copper prices may seek support from falling stocks at LME warehouses along with signs of tightness in the physical market and possible supply disruptions from Chile. However, the rise in stocks at SHFE may cap the upside. Copper stocks at LME fell by 6,900 tonnes to the lowest level since December 2005 while those at SHFE rose by 6,787 tonnes, hitting nearly four months high of 1,76,873 tonnes.
Meanwhile, reports suggest workers at Chile’s state-owned miner Codelco, the world’s largest copper producer, said on Friday that they would take “action” against what they describe as threats to their jobs.
Furthermore, nickel prices may seek support from upbeat demand from China’s stainless steel sector. However, higher stocks at both LME and SHFE may cap the upside. Nickel stocks at LME fell by 2,340 tonnes last week but continued to hover near August 2018 high hit last month while those at SHFE fell by modest 192 tonnes.
The metals pack may note mixed movement today amid mixed cues however overall bias for most metals may be positive amid demand optimism from China. Further cues may come in from economic data from China and Euro Zone and its impact on the US Dollar. In China along with headline import-export figures, the focus may also be on copper and aluminium imports data.
Also, the focus may continue to be on virus-related development, development over US-China tensions and discussion on further fiscal stimulus by the US and its impact on US Dollar as well as the global sentiment.
With US markets closed today for Labor Day holiday, trade volumes may remain low resulting in choppiness in price.
The author is VP- Head Commodity Research at Kotak Securities
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