IGI Logo

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

GOLD

After retracing over 1 percent during the previous week, the yellow metal seemed to gain strength as it concluded the recent week with a 0.4 percent gain.

Gold prices rose as a result of the uncertainty surrounding Europe, which is experiencing its worst energy crisis in decades, with Russia shutting down a major gas pipeline to the country, ultimately pushing up demand for safe-haven assets. The euro fell to fresh 20-year lows as economic growth in the eurozone is expected to suffer as a result of the protracted crisis. In times of political and economic turmoil, the yellow metal is seen as a safe haven.

The gains were limited when US Federal Reserve Chair Jerome Powell emphasized the central bank's commitment to inflation control. At its September meeting, the Fed is expected to raise interest rates by 75 basis points. The dollar index fell, as did US 10-year treasury yields, which were further tailwinds that kept gold prices stable.

The dollar index, on the other hand, is still near 20-year highs, which may keep some pressure on gold.

Outlook: We expect gold to trade higher towards 50790 levels, a break of which could prompt the price to move higher to 51190 levels.

CRUDE

Post witnessing a sharp fall during the previous week, crude prices extended the weakness to another week, as prices settled marginally lower, falling to their lowest level since January.

Oil prices began to rise after remarks from the EU's policy leader stated that the Iran nuclear deal would be delayed, as would the return of 1 million barrels per day of Iranian crude to the market.

However, prices remained under pressure for the majority of the time, as the world's second-largest consumer, China, saw a resurgence of covid-19, and the government's zero-COVID policy has placed places like Chengdu under lockdown, limiting people movement and perhaps affecting oil demand.

Another headwind for oil this week was the uncertainty around the US central bank's aggressive rate hikes, which are expected to strengthen the dollar and make dollar-priced crude more expensive.

Outlook: We expect crude to trade lower towards 6590 levels, a break of which could prompt the price to move lower to 6450 levels.

BASE METALS

The base metals pack recovered during the week, after ending lower in the previous week, except for Zinc, which extended the weakness. The metals pack recovered this week as China's cabinet announced extra measures to boost investment and support the COVID-affected economy, with the stimulus measures expected to be increased in the third quarter.

More than 50 policy measures have been issued since the month of May. Prices garnered additional support from the ongoing smelter issue, with France's largest aluminum smelter, Aluminium Dunkerque, becoming the latest to join the debacle by cutting production by a fifth.

Another smelter, Germany's Speira, declared on Wednesday that it will cut aluminum output by 50% due to high energy prices, adding to the million tonnes of manufacturing capacity that has been shut down in Europe over the last two years. Since energy prices began to rise last year, European smelters are expected to reduce yearly aluminum production by 800,000 to 900,000 tonnes.

However, there are significant headwinds lying behind metals, with copper and aluminum prices under pressure due to China's sluggish property and industrial sectors, which account for a significant portion of industrial metals demand.

Furthermore, the dollar is nearing 20-year highs, making metals more expensive for buyers holding other currencies.

Outlook: We expect copper to trade higher towards 662 levels, a break of which could prompt the price to move higher to 673 levels.

Please refer disclaimer at https://www.angelone.in/ 
SEBI Regn. No.: INZ000161534

Above views are of the author and not of the website kindly read disclaimer