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#39;Slow but steady recovery seen in base metals with gradual opening of economic activities#39;

June 02
13:05 2020

Tapan Patel

Commodity prices continued to trade higher. All major commodities in non-agro space witnessed buying based on demand growth prospects. Gold prices kept a firm trading range but ended marginally down on a week-on-week basis.

Silver prices outperformed gold with recovery in base metals while NYMEX WTI crude oil prices rallied by more than 6 percent during the week. Commodities prices traded higher along with equity indices as the reopening of the economic activities in most parts of the world boosted investments sentiment. The dollar index shaded nearly 1.5 percent which also supported commodity prices to trade higher.

Bullion prices traded volatile with spot gold prices at COMEX ended down by 0.2 percent at $ 1,731.20 per troy ounce witnessing recovery in the last two days of the week. Silver prices rallied along with base metals with COMEX spot silver prices rallied by 3.9 percent outperforming gold prices. Gold prices traded under pressure at the start of the week with ease of lockdown measures in most of the parts of the world. Gold and silver prices traded higher on safe-haven buying after the US signalled to eliminate the special status of Hong Kong after China passed a new National Security Law for Hong Kong and Macau.

The violent public protest in the US over the death of George Floyd in police custody also added fuels to bullion prices as people in several cities of the US joined in the protest. The Gold ETF holdings continued to rise as holdings at SPDR Gold Shares rose to 1,123.14 tonnes to a seven-year high.

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Crude oil prices traded higher for the fifth consecutive week on demand growth prospects and reduction in oil glut. The benchmark NYMEX WTI crude oil prices rallied by 6.7 percent to $ 35.49 for the week while ICE Brent oil gained to $ 38. Natural gas prices rallied by 6 percent along with crude oil on improved demand outlook.

Crude oil prices continued upside on-demand recovery as the lifting of the lockdown measures will give a boost to the fuel demand. The oil output cut effects from major oil producers have supported the oil market to balance reducing the glut. The OPEC plus nations may consider the extension of the output cut when they meet on 8-9 June. Saudi Arabia has suggested extending the output cut till the end of the year provided Russia agrees to it. The US crude oil and natural gas rigs count continued to hit lows as many of US energy firms have shut productions. The total oil and gas rigs fell by 17 to 301 as per data published by Baker Hughes.

Base metals prices continued upside for the second week on demand growth prospects. Metals prices witnessed buying across the board with strong equity indices as ease in lockdown measures in many countries have improved investment sentiments. Copper inventories at China declined by the most since September 2017 to 1,44,988 tonnes as per the data released by SHFE.

The Aluminium prices showed signs of recovery with a rise in imports from China. The rising tensions between the US and China over New Security Law for Hong Kong and Macau kept upside limited in base metals. However, the stimulus measures from China revived the manufacturing activities in China. The Caixin Manufacturing PMI for May 2020 came better than expected at 50.7 on Monday. We expect a slow and steady recovery in base metals with the gradual opening of economic activities. MCX Copper June has important support at Rs 410 per kg and resistance at Rs 427 for the coming week.

The author is Senior Analyst – Commodities at HDFC Securities.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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