Commodities Outlook: Metals fall sharply, Oil prices hit fresh highs
Commodity Online | June 28 2018
UPDATED 17:47:23 IST

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By Sam Nair
Precious Metals extend losses ahead of US growth reports

Precious Metals are trading marginally lower extending losses from its previous session with Gold at 30594.0, down 101.0 or 0.33% whereas Silver is at 39425.0, down 217.0 or 0.55% currently.

Precious Metals traders largely continue to ignore the drama surrounding the global trade war and instead focus on the macroeconomic releases and the dollar index which continue to remain upbeat and in turn, reducing demand for safe haven assets.

The focus today will be on the unemployment claims report and Q1 GDP report from the US which if meets market forecasts could pressure bullions further in intraday.

Technically, Gold and Silver both remain in a downtrend with Gold exhibiting a stronger bearish momentum than its counterpart. Gold finds support at 30250.0-30300.0 whereas Silver should see selling pressure emerge if it breaks support at 39400.0 and then decline to 39000.0-38600.0 in the immediate term.

Base Metals continue to trade volatile; trend remains weak

Base metals continue to remain volatile and under pressure despite positive news flows. Copper is down nearly a percent to trade at 449.50 followed by Nickel at 1015.30, down 0.37%. Zinc is the only metal to trade in green at 203.10, up 0.82% currently.

Base Metals continue to remain under pressure as the trade war between the US and other countries continues to escalate without any resolutions.

Zinc rallied after reports from China’s SMM that top zinc smelters plan to cut zinc (and possibly Lead) output by 10 percent after holding a meeting in Shaanxi province to address low zinc prices and treatment charges. We maintain a bearish outlook on base metals as a whole but consider the current prices levels to be oversold and expect a minor pullback in prices.

Crude Oil rallies to new highs on surprise inventories decline

Crude Oil rallied over 15% since the OPEC meeting and is trading at 5002, down 27 points or 0.54% whereas Natural Gas is trading at 205.70, up 0.05% currently.

Oil prices rallied sharply after the EIA reported that oil inventories in the US declined 9.89 mmb beating market forecasts of a 2.57 mmb drop in stocks. The sentiment was already boosted after the OPEC meeting which saw the oil cartel disappoints the market with a return to 100% compliance instead of an actual production increase.

The sentiment continues to remain bullish but the overall technical picture indicates a possible correction in prices in the short term. The weakness in the USDINR also supported domestic prices and the sharp increase in OI on MCX could indicate a potential short-term top in place. We expect prices to correct sharply in the short term.

(Sam Nair is AVP - Commodities with Stewart and Mackertich Wealth Management Limited)

The views and ideas expressed above may have been suggested to the clients of SMIFS Finance Ltd. It is advisable that investors/traders should consult with their Certified Experts before taking any investment decisions.