Uncertainty over US presidential elections, delay in stimulus package may lift gold prices: HDFC Securities

August 18
15:04 2020

Tapan Patel

Commodity prices traded mixed with bullion prices paring some gains after witnessing weekly correction for the first time in two months. Crude oil prices traded higher keeping the strict trading range on mixed global cues. Base metals prices witnessed mixed trading with copper and aluminium ending in green while rest of the complex ended in the red. The dollar index stabilised during the previous week with a rise in US real yields and postponement of US-China trade talks.

Gold prices traded in the neegative last week witnessing first weekly decline after rallying for nine weeks. Spot gold prices at COMEX fell by more than 4 percent to $ 1,945 per ounce while at MCX, gold October futures fell to Rs 50,200 but managed to recoup some losses to end at Rs 52,227 per 10 grams for the week. Silver prices witnessed sell-off with spot silver at COMEX falling by more than 6 percent to $ 26 per ounce.

Gold prices pared gains during the week as a rise in real yields pressured gold prices on economic growth optimism. The gold ETF holdings halted the gains as holdings at SPDR gold shares fell to 1,248.29 tonnes on Friday as investors rushed to book profits. The CFTC data showed that the money managers have decreased their net long positions to eight week low by 23,344 lots with correction in gold prices.

COMEX spot gold prices are on verge of rebound after correcting nearly 10 percent from the record highs of $ 2,075. The infused investment in bonds to support the global economy has pushed bond yields below zero and are expected to go near zero or below zero in the medium-term. Gold prices are set for a strong bull case with global net negative yielding debt market value reaching to near $ 16 trillion, according to Bloomberg.

The tensions between the US and China and slower economic recovery may continue to support gold prices in the medium-term. The delay in the US aid package and uncertainty over the US Presidential election may also add fuel to the rebound in prices. COMEX spot gold prices have tested support near $ 1,860 per troy ounce recently. We expect gold prices to trade higher limiting the downside with near term resistance at $ 1,980/2,080 per ounce and support at $ 1,860/1,800 per ounce.

At MCX, Gold August prices have near term resistance at Rs 53,800/56,000 per 10 grams and support at Rs 50,200 per 10 gram. Silver prices at COMEX have resistance at $ 30 per ounce with strong support at $ 26 per ounce. At MCX, September Silver prices have resistance at Rs 72,000/74,000 per KG, support lies at Rs 65,000 per KG.

The author is Senior Analyst – Commodities at HDFC Securities.

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