Crude likely to remain choppy with positive bias: Kotak Securities
NYMEX crude trades mixed near $ 32/bbl after a 1 percent gain yesterday. Crude oil rallied sharply in last few days, however, the rally seems to have stuttered above USD 33/bbl level. Position squaring near contract expiration and mixed factors have also led to some choppiness.
API report was mixed to positive. API noted a 4.8 million barrels decline in US crude oil stocks as against forecast of a 1.2 mn bbl rise. Crude oil’s rally has come to a halt as market players await fresh cues which could come from inventory report.
We may see choppy trade, however, general bias may be on the upside amid expectations that inventory report may reflect improving situation in the US.
COMEX gold trades moderately higher near $ 1,750/oz after a 0.6 percent gain yesterday. After a sharp retreat from recent highs, gold has bounced back and is consolidating near USD 1750/oz.
Gold fell sharply earlier this week as hopes of a vaccine for COVID-19 led to a shift out of safe-haven assets to riskier assets. Gold, however, regained its momentum as enthusiasm about a possible treatment waned and equity market came under pressure.
Also supporting gold price is concerns about US economy amid mixed economic data and downbeat growth assessment. The US Congressional Budget Office said it is projecting GDP to fall 38 percent in the second quarter. CBO expects US economy to bounce back sharply in the third quarter after its deep coronavirus-related collapse, but it will not fully recover its lost ground until sometime after next year. US housing data released yesterday was mixed while Fed Chairman Jerome Powell said layoffs by state and local governments will slow the US economic recovery and Boston Fed President Eric Rosengren said the US unemployment rate is likely to stay at double-digit levels by year-end (Reuters).
Bleak economic outlook makes a case for the Fed and government to continue with stimulus measures. ETF investors however moved to sidelines as price struggled to hold the momentum above $ 1,750/oz. Gold holdings with iShares ETF were unchanged at 1113.784 tonne.
Gold may witness choppy trade as market players assess the virus-related situation as well US-China relation, however, the general bias may be on the upside unless market nervousness persists.
COMEX Silver has risen over 1 percent to trade above $ 18.1/oz after a 2.5 percent gain yesterday. After a sharp correction earlier this week, silver price bounced back yesterday as gold price regained upward momentum. The continuing rise in gold price has shifted buying interest to cheaper alternative silver which has a strong positive correlation with the metal. This is evident from a sharp fall in gold-silver ratio as well which has slipped below the 100 level.
ETF investors, however, moved to sidelines awaiting more clarity about sustainability of silver’s rise. Global growth worries have also kept concerns high about industrial demand while the supply situation is improving with Mexico and other producing states working on reopening their economies. The general strength in gold indicates that overall momentum is positive for silver however stall in ETF buying raises some red flags hence fresh buying should be done only at corrective dips.
Base metals on LME trade sideways to lower in early trades today after most ended on a higher note yesterday. Prices have turned choppy amid waning euphoria over progress on vaccine front as is evident from mixed trend in global equity indices.
On central bank front, US Fed Chair Jerome Powell yesterday reiterated that the central bank is ready to use all the weapons in its arsenal to help the US economy endure the coronavirus pandemic; as reported by Bloomberg. Also lending support is the recent weakness in the US Dollar Index.
Copper prices may come under pressure amid recent build-up in stocks at LME warehouses along with an expectation of improving supply from Peru. The downside may, however, be capped amid signs of improvement in demand from China evident from a jump in copper import premium in the nation. In other metals, aluminium prices too may come under pressure amid rising stocks at LME and signs of ample supplies in the physical market, however, declining stocks at SHFE may cap the downside.
Further Lead prices may come under pressure amid weak demand outlook and rise in stocks at LME warehouses while Nickel prices too may come under pressure amid jump in stocks at LME along with easing worries over supply Philippines; however, lower stocks at SHFE may cap the downside.
Lastly, Zinc prices may be pressurized by weak demand outlook. However, a jump in output from China, falling stocks at exchange warehouses along with signs of tightness in the physical market may cap the downside.
The author is VP- Head Commodity Research at Kotak Securities
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