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Published on 19/09/2022 11:11:40 AM | Source: Angel One Ltd

Commodity Article :Gold extended fears of tighter Fed policy, Crude settles lower by Mr Prathamesh Mallya, Angel One Ltd

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GOLD

After managing to conclude on a positive note, weakness set in the following week, as the yellow metal fell back into the red and finished the week with a loss of almost 3%.

The US dollar index, which experienced a strong upward momentum and eventually posted its highest one-day percentage gain since March 2020, was one of the key factors that restrained the price of gold.

The index's sharp increase and the treasury yields' at three-month highs constrained the upside for the bullion. The US economy reported higher-than-expected inflation over the week, which caused the dollar to jump and fueled expectations that the Federal Reserve would keep tightening monetary policy.

Gold is highly sensitive to rising US interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar.

Outlook: We expect gold to trade lower towards 48940 levels, a break of which could prompt the price to move lower to 48520 levels.

CRUDE

Crude's continued decline extends for another week as the NYMEX drops by 3%. Crude prices did have a good start to the week but weakness set in and prices fell victim to the current trend because of the high inflation rates, which are well beyond the US Central Bank's target.

Recent inflation data for August showed a figure higher than anticipated, which subsequently stoked expectations that the US central bank would likely increase interest rates to bring inflation under control. An appreciating dollar means the buyers who use foreign currencies will have to pay extra for crude as it is priced in dollars.

Crude prices saw signs of recovery as the world's largest consumer of crude, the US faced an increased risk of a potential rail shutdown due to the protracted labor dispute and worries about a supply bottleneck, that increased ahead of the winter season in the Northern Hemisphere.

Outlook: We expect crude to trade lower towards 6700 levels, a break of which could prompt the price to move lower to 6560 levels.

BASE METALS

The industrial metals pack ended the recent week on a negative note, after ending the prior week on a positive note, except for Zinc, which extended the weakness for the second straight week.

Following the startling CPI statistics, the dollar strengthened even further, recording its highest daily percentage gain since 2020 causing worries that the Federal Reserve will raise interest rates more aggressively in the future, which might hurt the demand for metals.

When the dollar is strong, commodities priced in dollars become more expensive for holders of other currencies. The production of the energy-intensive metal aluminum has slowed down as Europe struggles with rising power prices, and roughly half of the EU's capacity to produce aluminum and zinc has already been shut down.

Other industrial metals, however, are still under pressure due to concerns that a global economic downturn will cut demand for metals. On the other hand, the largest copper deposit in the world, Chile's Escondida mine, where the workers union is supporting a partial strike and has threatened a complete work stoppage.

Outlook: We expect copper to trade lower towards 643 levels, a break of which could prompt the price to move lower to 633 levels.

 

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