Precious Metals rally on second-wave fears; oil and base metals may correct
Commodity Online | June 22 2020
UPDATED 17:52:52 IST

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Precious Metals are trading slightly higher today as fears of a second-wave of coronavirus in the US saw demand for safe haven increase over the weekend. Gold futures are trading at $1758.0, up 0.29% whereas Silver is trading at $17.98, up 0.76% currently. Despite the FED’s dovish stance on the economy and supporting economic policies, Gold prices have failed to garner enough momentum to test $1800.0 over the past month largely due to stronger financial markets which expect the global economies to recover from the recession at a faster pace. It is also worth noting that during the Financial Crisis of 2008, the gold market did not rally until Q4 after the Federal Reserve started easing the fiscal policies.

 

A key risk event for the market this week is the IMF’s 2020 global growth forecasts which will forecast a grim picture for the global economy and markets as a whole. Technically, the early morning rally has seen Gold prices test an intermediate resistance at $1775.0 and a strong uptrend is expected only if prices post a strong close above these levels. Silver has failed to reflect Gold’s momentum and continue to remain under pressure. Precious Metals may decline further in intraday due to profit booking.

 

Copper futures has been trading with a positive bias since open today with LME 3-month futures at $5864.25, up nearly a percent today whereas the rest of the metals are trading slightly in red since open today. Base Metals, especially Copper prices have remain supported since last week as leading producer Chile continued to suffer heavily from Covid-19 overtaking Germany and Iran to be 9th country with highest number of cases in the world. Prices are also been supported stronger equities and after Copper inventories in SHFE dropped to their lowest level in 17 months indicating a strong recovery in Chinese demand. Despite the strong fundamentals, we continue to remain cautious on Base Metals in the short term as momentum indicators continue to point towards a possible short term profit booking move in the immediate future. Technically, the formation of a small triangle pattern indicates another up move in Copper above resistance at Rs.449 to Rs.452-454 while on the downside, Rs.446 will the key support level to watch out for breaking which we may see Copper prices enter a corrective phase.

 

WTI futures are once again testing the psychological resistance at $40.0/bbl today morning and are trading at $39.68/bbl, down by about half a percent currently whereas Brent Oil is trading at $42.0/bbl today. In the latest monthly report, OPEC said that member states cut oil output by 6.2 million barrels per day in May 2020 in a concerted effort to support oil prices. OPEC+ members saw an overall compliance of over 87% and improved compliance to individual quotas which also kept prices buoyed. Despite the bullish developments, oil prices continue to remain under threat from a second-wave of contagion in the US and other countries which would once again see lockdowns being imposed and affect oil supply and demand. Crude Oil prices face a strong support at $39.20 breaking which we expect oil prices to enter into an extended profit booking mode and see it test $35.0 or possibly lower in the short term. On MCX, support is seen at Rs.3000.0 and then further lower at Rs.2950.0

Sam Nair



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