Gold may remain choppy, but buying may emerge at lower levels: Kotak Securities
COMEX gold trades 0.5 percent lower near USD 1934/oz after a 0.5 percent gain on September 8. Gold fell as low as USD 1911.7/oz in intraday trade on September 8 but bounced back to end higher. Mixed factors have led to directionless trade in gold and this may continue in the near term.
Supporting gold price is increased safe haven demand amid sell-off in equity markets, uneven global economic recovery, rising virus cases, increased US-China tensions and Brexit uncertainty. US and global equity markets have corrected sharply from the highs as market players questioned the rally in face of rising challenges to global economy.
Virus cases continue to rise globally while resurgence of cases is being reported in many European countries like France, etc. US-China are at loggerheads over various issues .Brexit uncertainty rose amid lack of progress in UK-EU negotiations and as Britain threatened to undercut its divorce treaty with the European Union.
However, weighing on gold price is gains in US dollar index. The US currency has benefitted from mixed European economic data, position squaring ahead of ECB meeting tomorrow, Brexit uncertainty and safe haven buying amid sell-off in equity markets. Also weighing on price is lack of ETF buying despite correction in prices.
Gold holdings with SPDR ETF were unchanged for a third day at 1250.042 tonnes. The recent movement in gold indicates that prices are stuck in a broad range of USD 1900-2000/oz and directionless trade may continue unless either side is broken.
Gold may remain choppy but buying may emerge at lower levels amid increasing global uncertainty and also as Fed’s dovish stance may limit upside in US dollar.
Crude oil along with other commodities are also pressurized by gains in US dollar index on back of Brexit uncertainty and positioning ahead of ECB meeting. Apart from general weakness in financial market, crude oil is also pressurized by increase in OPEC’s production and Saudi Arabia’s move to lower price for Asian customers amid signs of weaker demand.
US EIA in its monthly outlook painted a mixed picture as it lowered the 2020 estimate for US crude production but raised the forecast for next year. However, supporting price is expectations of another decline in US crude oil stocks.
NYMEX natural gas trades about 1 percent lower near USD 2.37/mmBtu after a sharp 7.3 percent decline in previous session. Natural gas came under pressure as mixed weather forecasts for US dented demand outlook. Also weighing on price is mixed rig activity and restart of Gulf of Mexico production post closures caused by storm activity.
A sharp sell-off in crude oil price also weighed on natural gas prices. However, supporting gas price is pick up in LNG exports as port normalized operations after storm related disruptions. EIA has also revised down its production estimate for this year and next indicating tighter markets. Natural gas has corrected almost 14 percent from the November 2019 high set late last month. The sell-off has dented market sentiment and weakness could persist however we expect some position squaring ahead of inventory report tomorrow. Focus may continue to be on US weather, trend in energy prices and storm activity in Atlantic.
The author is VP- Head Commodity Research at Kotak Securities
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