Commodity Outlook – Gold seen higher in mid-term; metal prices supported by weak dollar

Gold and silver prices have been volatile in the last 2 months after the correction from the August 2020’s high levels of Rs. 56200 per 10 grams and Rs. 78000/kg respectively.

The prices that had dropped to a low of Rs. 49,200 per 10 grams for gold and Rs. 56,000/kg for silver has seen a pullback to the current levels of Rs. 50,300 per 10 grams for gold and Rs. 60,500/kg for silver at MCX.

This is due to the weakening dollar in response to the ongoing discussions on the fourth US stimulus bill to support the economy, which has been adversely impacted by the pandemic.

Dwindling equity markets due to rising Covid 19 cases are also devaluing the USD and supporting the precious metal pack.

On the technical front, gold is holding up at $1,900 at COMEX making it the new base and may drive up prices in the medium-term to $2000 at COMEX.

This may happen due to the uncertainty linked to the US elections and the overall global economic crisis.

Sunilkumar Katke is Head – Commodity and Currency at Axis Securities

Gold price of $2,000 at Comex converts to Rs. 53,000 per 10 grams at MCX which is still Rs. 3,000 per 10 grams, less than the very high levels we witnessed in the beginning of August 2020.

Silver on the other hand is trading at $24 now, but is expected to follow in gold’s footstep in the near term as the demand picks up from increased activity in the solar power sector and improved manufacturing activities worldwide.

Commodities Future Trading Commission’s (CFTC) data also shows an improvement in the Long OI’s indicating a possible uptrend in the coming days.

A weakening dollar and rising US inflation may also support the silver prices in the medium term, and hence we recommend a buy on a dip strategy at MCX, around Rs. 60,000/kg with an SL at Rs. 59,000/kg, targeting Rs. 63,000/kg in coming 10-15 days time.

The disagreement over the US stimulus bill is holding back gold and silver prices. However, a surge at any moment can be witnessed if the deal is approved. It is a major factor to keep an eye on.

Crude oil

In the energy sector, the WTI Crude is trading in a very tight range of $38-$42. This is because demand has not recovered given the ever-growing Covid-19 cases and the slowdown in economies.

OPEC has recently revised the demand forecast for 2021 and expects the growth in consumption to be lower by 80,000 BPD as against its previous month’s forecast.

The surge in the US inventories is another reason why the prices are under pressure. The current realized prices are also attributed to the hurricanes across the Gulf of Mexico disrupting supplies leading to production disruptions.

However, these issues have been addressed and hence we expect the prices to trade on the bearish side and suggest a sell around Rs.3000 per barrel at MCX with a target of Rs. 2800 per barrel and a stop loss of Rs. 3100 per barrel in the coming 15 to 20 days.

The US Covid relief package, if approved, may support the prices and there is a need to keep an eye on that.

Base Metals

The industrial metals have performed well over a period of last two months backed by the stimulus measures announced by the central banks across the globe and better manufacturing data are from various parts of the world, especially the largest consumer, China.

IMF’s forecast of better global economic recovery in the coming months has buoyed up the prices. Also, the weakening of USD has supported the industrial metal pack including metals like nickel and zinc.

Further, a possible strike at Chile copper mines is expected to support the prices in the coming weeks, and hence, we recommend a buy on copper at MCX in the range of Rs. 520-525/kg targeting 530-535/kg in the coming 10 days.

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