Precious Metals rally to record highs; oil prices push higher ahead of inventories
Commodity Online | August 05 2020
UPDATED 16:28:52 IST

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Precious Metals are trading at record highs with Gold futures at $2043.65, up 1.75% and Silver futures at $26.935, up 3.47% currently. On MCX, Gold is trading at Rs.55263, up 1.30% while Silver is trading higher by over 3.44% at Rs.72193.0. This year, gold prices have shot to record highs since September 2011, as investors fled to safe havens with the pandemic showing no signs of abating and a crashing economy driving prices high by almost 13% over the past 10 days. Silver prices have followed suit with futures recording gains of almost 40% in the past two weeks. Silver gains are largely being driven by a recovering global economy which is expected to improve the industrial demand for Silver. Silver has seen an increasing use for a number of medical applications and electric components for the 5G network and this along with US presidential candidate’s green infrastructure plan under which commuter trains, buses and passenger vehicles will run on electricity or clean fuel, and clean light rail and bus systems will be developed and upgrades to housing and commercial buildings to make them more resistant to extreme weather would act as a solid boost for Silver prices. The anticipation that the Congress would large another massive fiscal stimulus program is likely to act as a key support for Gold prices this week. We maintain a strongly bullish view on precious metals in the short term and Gold prices are expected to test $2080-$2100 before taking a breather and Silver is likely to test $31-$34 before we see any major corrective moves.

 

Crude Oil prices have reached pre-lockdown levels last seen in March supported by the OPEC cuts and a slow but recovering economy. WTI near month futures are trading at $42.75, up 2.49% whereas Brent futures are at $45.47, up 2.34% currently. Natural Gas is also gaining over two percent to trade at $2.24 at present. The American Petroleum Institute (API) reported on Tuesday a draw in crude oil inventories of 8.587 million barrels for the week ending July 31 whereas the EIA (report at 8.00 pm) is forecasting a draw of 3.00 million barrels during this period and prices may rally further today in case the report is in line with expectations. OPEC has started relaxing its historic production cuts starting this Monday and the market seems to be factoring the extra supply quite well given that the global economy continues to struggle with the covid-19 pandemic and slower than expected recovery. The massive blast in Beirut which is now confirmed as due to unsafe storage of ammonium nitrate has also removed a risk premium from the market. In the short term, we maintain a bullish outlook on prices and a close above Rs.3200 on MCX should see prices aim for Rs.3300-3400 in the short term whereas Rs.3150 should act as a strong support for prices. NG prices should maintain its upward momentum after prices broke above its key resistance at Rs.161 and is now likely to aim for Rs.180-185 in the short term.

 

Base Metals continue to remain firm with the trio of Aluminum, Lead and Zinc playing catch up with the leaders Copper and Nickel over the past few days. On LME, Copper is at $6511.0, up 0.93% while Nickel is higher by over two percent to trade at $14282.50 currently. The rest of the metals are also trading higher supported by stronger macro-reports from consuming countries. The massive rally in Silver is also driving Nickel prices higher. While we continue to remain bullish on base metals as a whole, the unprecedented rally given that global recovery remains tepid and the increasing tensions between US-China should act as a threat to the current momentum despite the market having ignored it for a while now. We continue to maintain a cautiously bullish approach with base metals and expect Copper to rally to Rs.520-525 and Nickel to test Rs.1100-Rs.1120 in the next few days.

Sam Nair



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