Commodities Outlook: Precious Metals trade steady; Short-term trend positive for Base Metals
Commodity Online | June 04 2018
UPDATED 18:22:44 IST

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By Sam Nair
Precious Metals trade steady; Weaker currencies support prices

Gold is trading at 1298.80, down marginally whereas Silver is in green at 16.45 currently.

Precious Metals are trading in a range as the weakness in currencies and geopolitical tensions continue to boost prices in the short term. Despite safe-haven demand, increasing chances of a rate hike from the FOMC this month kept a lid on the upside.

U.S. job growth accelerated in May and the unemployment rate dropped to an 18-year low of 3.8 percent, pointing to rapidly tightening labour market conditions, which could stir concerns about inflation which should further help the FOMC hike rates this year.

Hedge funds and money managers raised their net long position in COMEX gold contracts to the strongest since late April in the week to May 29, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

The intraday bias is neutral on precious metals.

Base Metals trade neutral; Short-term trend positive

Base Metals have started the week on a mixed bias with Aluminum rallying over a percent to trade at 2327.75 whereas Copper is at 6943.50, up 0.56% currently. Lead is the worst performer at 2438.50, down a percent.

The overall bias continues to remain positive as supply disruptions lend support to prices. After Vedanta's mine shut down in India, the world's largest producer Escondida is also facing uncertainty as wage talks began on Friday. Last year, one of the major drivers of Copper prices was a 44-day strike at the same mine in Chile.

Technically, Copper has been stuck in a range between around $7,300 and $6,600 since hitting a four-year high in December. On Monday it broke above its 100-day moving average, improving its technical picture, and was poised to move above its downtrend line from its April high.

While we neutral on prices in intraday, sustained activity at current levels should support our short-term bullish view and see buying emerge on dips. Aluminium prices continued to rally further after the Trump administration imposed tariffs on allies.

Beginning this month, US President Donald Trump has imposed a 25 percent tariff on import of steel from Canada and another 15 percent on aluminum using the "national security interest" provisions of the existing American laws and meanwhile, the talks between China and US remain uncertain, import duties could create mismatch between supply and demand and boost prices.

Technically, base metals are trading with a positive bias in the evening session ahead of the US open.

Oil prices decline further as OPEC meet yields no result

Crude Oil is down by about half a percent at 65.45 currently whereas Natural Gas is up 0.27% to trade at 65.47.

The closed-door OPEC meeting was a non-event as key members remained tight-lipped about changes to policy ahead of the official meeting on June 22. Crude Oil took a hammering last week as reports suggesting that Saudi and Russia may increase supply to compensate for the loss of production from Iran and Venezuela due to sanctions.

The combined effort between OPEC and Russia has been key to reducing the global glut and support prices higher over the last 2 years. Increasing US rigs and shale production has also been weighing on prices in the recent past.

The technical outlook continues to remain bearish as prices have broken below intermediate support at 4450.0 and we expect it to test support at 4300.0-4320.0 this week whereas, on the upside, a breakout above 4460.0-4470.0 should see prices recover 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.

Commodity Arrivals Rate
Mustard Oil 2 8800.00
Coconut Oil 2 18400.00
Arecanut 21 22000.00
Sugar 390 3422.00