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"Daily Commodity Article" by Mr. Prathamesh Mallya, AVP- Research, Non-Agri Commodities, and Currencies, Angel One Ltd

GOLD

On Tuesday, gold continued to witness weakness from the previous session as the yellow metal prices managed to end just above the $1700 mark.

Gold prices fall as the US dollar strengthened and Treasury yields rose, bolstering hopes that the Federal Reserve would maintain its aggressive rate-hiking stance.

The dollar index edged closer to the two-decade high reached the previous session, making gold more expensive for foreign buyers. Treasury rates in the United States have risen to their highest level since June 16. The opportunity cost of storing non-yielding gold rises as yields rise.

Outlook: Given the economic uncertainties, the yellow metal may see an uptick. However, the gains may be limited as central banks throughout the world are projected to raise interest rates.

CRUDE

Crude prices fell on Wednesday as COVID-19 restrictions in top crude importer China and anticipation of further interest rate hikes fueled fears of a global economic slump and reduced fuel demand growth.

The OPEC+ production cut bounce is fading as China's tough zero-COVID policy has placed cities like Chengdu, under lockdown, limiting people movement and oil demand in the world's second-largest consumer. 

Investors are also anticipating additional interest rate increases to combat inflation. When the European Central Bank meets on Thursday, it is largely expected to raise interest rates. Following the ECB meeting, the US Federal Reserve will convene later in September.

Outlook: We expect crude to trade lower towards 6820 levels, a break of which could prompt the price to move lower to 6680 levels.

BASE METALS

On Tuesday, Aluminium and Zinc ended on a lower note on the LME and on the MCX, whereas aluminum slipped lower to 17-month lows as a strong dollar and worries over economic growth overshadowed production cuts in Europe.

Fears about global economic growth clouded metals demand even further, outweighing supply concerns fueled by European production cuts.

In the face of rising energy prices, European smelters have been scrambling, with France's largest aluminum smelter, Aluminium Dunkerque, reducing production by a fifth.

The dollar reached 20-year highs, making metals purchased in dollars more expensive for buyers in other currencies. A strong dollar makes the commodity more expensive for buyers holding other currencies.

Outlook: Given the uncertain macroeconomic environment, metals are projected to remain under pressure. However, smelters' production cuts will reduce the downside risk.

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