Metals rally as risk aversion takes hold; oil prices steady ahead of inventories report
Commodity Online | July 08 2020
UPDATED 16:43:27 IST


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Precious Metals are trading sharply higher today as Covid-19 concerns continued to mount and US lawmakers said that a new monetary policy package would be released in the first week of August to further support the economy. Gold futures are trading at $1815.55, up 0.30% whereas Silver is at $18.83, up 0.74% currently. While the macro-economic indicators point towards a significant improvement in the US economy largely due to job numbers, the FED has been constantly warning that the recovery would likely taper off and continue at a smaller pace due to the increasing number of cases in the US. The European Commission also forecast that the Euro Zone would drop deeper into recession this year. The market optimism is being constantly tested which is offering continued support for Gold prices and blankly put, the increasing number of cases will continue to boost prices until a vaccine is found in the short term. Gold futures are trading at its highest level in almost 9 years and is expected to rally to $1840-$1850 in the near future before resistances force long liquidation whereas support on the lower side is expected to come into play at $1800 and then lower at $1760.0 going ahead. Silver futures are also testing key resistance at $19.0 and a weekly close above this level would see prices push higher to $21.0-$21.25 in the near term.


Base Metals are also trading sharply higher today with Lead and Zinc gaining close to two percent today whereas Copper is trading steady at $6198.75, up 0.10% currently. Copper prices have been gaining momentum as worries over mine closures in Chile gained pace after Chile’s mines minister said on Tuesday there were “no silver bullets” to help the industry weather the coronavirus pandemic, but insisted the world’s biggest copper producer was prioritising workers’ health to avoid the spread of infections that could further harm operations. A broader look at the current scenario would point towards further increase in the number of infections in Chile and the eventual possibility that production could come to a half for an extended period of time, the risk of which has already been factored into the price and over the medium-long term, the demand picture should emerge and push prices back to value levels. We continue to maintain a cautious approach with the base metals group. Copper prices continue to remain at elevated levels and the risk of a strong long liquidation is incredibly high. The net long positions across all three exchanges (LME, CME and SHFE) reflect a high number of longs compared to March and runs the risk of a position unwind going ahead. In intraday trading, Copper futures may decline further if it breaks below support at 475 whereas above 477.50 should see buying reemerge and push prices to 480-482 today. Nickel futures have also broken above short term resistance at 994 and is likely headed to 1050 over the next few weeks.


Oil prices are having a steady morning today with WTI futures at $40.55, down 0.20% whereas Brent Oil, traded on ICE, is down 0.05% to $43.07 currently. Natural Gas prices are down over a percent to trade at $1.855 today. The American Petroleum Institute reported late Tuesday that U.S. crude supplies rose by 2 million barrels for the week ended July 3, according to sources. The API data also reportedly showed gasoline stockpiles fell by 1.8 million barrels, while distillate inventories declined by about 847,000 barrels. The official EIA report which is due at 8.00 pm where analyst consensus calls for a draw of 3.11 mb compared to a decline of 7.19 m in the previous week. We expect oil prices to consolidate further as traders focus on whether the increasing cases in the US would call for further lock downs and on OPEC, which is due to meet this month to decide on oil output cuts. The intraday bias is inclined to the weaker side and we expect further downside if prices break below support at 3030 whereas resistance is seen at 3070 in intraday.


 Sam Nair

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