Metals extend gains as markets focus on unemployment situation; oil prices decline
Commodity Online | August 06 2020
UPDATED 17:38:54 IST

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Gold futures are trading at $2049.65, up 0.62% and Silver is gaining nearly four percent to trade at $27.844 currently. MCX Gold is trading at Rs.55600.0, up 0.91% whereas Silver futures are at Rs.74899.0, up 4.20% currently. Gold prices gained further momentum following a softer than expected ADP non-farm payroll report which increased only 167,000 against the 1.5 million figure that was expected. The focus today will be on the unemployment claims report at 6.00 pm which should further provide cues for the employment situation. While the number of covid-19 cases in the US continue to rise, the Democrats have been pushing for another $400 billion fiscal package along with the $3 trillion announced earlier with negotiations running for over a week now. Precious Metals are likely to gather further momentum if an additional fiscal package is announced by the US. The overall global situation – lower interest rates, aggressive central bank monetary stance, increasing covid-19 cases along with re-ignited tensions between US and China should continue to bolster prices in the short-medium term but it is impertinent to ignore that with excessive bullish sentiment and forecasts come sharper price corrections. While gold bugs continue to vouch for the rally in Gold, many central banks are forecasting upsides of over 50%-100% in the next few months which could eventually pave way for a volatile liquidation scenario. We continue to maintain a positive bias in intraday and expect MCX Gold to rally to 55800-56000 whereas MCX Silver should test life-time highs and face resistance at 76000-77000 today. Technically, momentum indicators are pointing towards and increasing overbought scenario which suggests approaching trades with caution.

 

Oil prices rallied to its highest level since March after the US EIA reported that commercial crude inventories fell 7.4 million barrels compared to a draw of 2.3 million barrels. WTI prices are trading at $41.87, down 0.73% whereas Brent is down marginally at $45.12, down 0.11% currently. Oil prices done well to recover from April lows after the coronavirus pandemic took its toll on prices and with OPEC+ efforts production was dramatically cut to support excess inventories and fuel demand but prices have been consolidating into a broad range over the past two months as traders continue to dissect the pace of global growth. While the number of cases globally continue to rise, a second wave of lockdowns will see demand take a hit and push prices lower with returning OPEC+ supply complicating things further. The focus will be on the payrolls report this Friday along with a second round of stimulus from the US which could limit potential downsides in crude oil. Natural Gas, on the other hand, has been the performer recently supported by an increase in net demand and a tropical storm which is threating US production. As we head into the winter months of stronger demand, gas prices may aim for $3.0 over next few months and we suggest a buy-on-dips strategy. The situation for oil prices remains precarious as the rally from last evening was unable to sustain as demand continues to remain tepid and increasing supply from OPEC+ will weigh on prices. Technically, we are bearish on prices and expect further declines if it breaks below 3120 with 3050-3000 on the cards this week whereas a move above 3150 resistance may see prices push higher to 3200.

 

Base Metals are trading with a positive bias today with Nickel rallying over 1.69% to trade at Rs.1105.0 and Copper higher by over half a percent to trade at Rs.513.70. The strong in base metals comes as Chinese demand picks up and the push for EV gains momentum in the short term. Copper prices have seen a marginal correction over the past few details as traders continue to book profits and technically, we are at a critical juncture as Copper prices may see further downside if it breaks below support at 507 whereas resistance is expected to come into play at 517.0 this week. Nickel prices will continue to remain bullish in the short term and we expect it to test 1150-1180 before the current month futures expire and a buy on dips strategy continues to remain appropriate for short term traders.

 

Sam Nair



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