IGI Logo

Gold, Crude settle higher as dollar index cools down

GOLD

The bounceback seen in the previous session was extended further on Wednesday, as bullion prices witnessed an uptick of nearly 2 percent and concluding the day at 1659.4$ per ounce.

Prices continued to recoup from a slip to its lowest levels since April 2020, as a weaker dollar increased the allure of safe haven assets, but the likelihood of a swift interest rate increases left the non-yielding precious metal close to a 2-1/2-year low.

The yellow metal prices saw a recovery from its lower levels, as the dollar index witnessed a decline, causing the prices to revert to the positive territory.

After reaching a fresh two-decade high, the dollar retreated, making gold less expensive for overseas buyers while Treasury yields also dropped.

Outlook:As central banks throughout the world maintain their stance on raising interest rates in order to bring inflation under control, pressure on gold prices is anticipated

CRUDE

Crude prices on Wednesday continued the gaining momentum, as the benchmark crude indices Brent and NYMEX ended with gains of 2.92 and 4.65 percent respectively.

The unexpected decline in US crude stocks and the subsequent decline in the US dollar index after its recent rise boosted the commodity prices. 

However, on Wednesday, the dollar index versus a basket of currencies reached new two-decade highs before witnessing a pullback. A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies.

On the demand side, China's economy is thought to be rebounding from a trough hit in the second quarter, as relaxation of COVID-19 limits in a number of Chinese cities is expected to boost oil demand.

Outlook:We expect crude to trade higher towards 6850 levels, break of which could prompt the price to move higher to 6980 levels.

BASE METALS

On Wednesday, the base metals pack witnessed a mixed set of action as, metals on the LME ended on  a positive note. While on the MCX, except for Copper and Lead, all the other metals ended on a lower note.

As the dollar declined on Wednesday, copper prices rose from more than two-month lows, however concerns about an impending recession and declining metals demand limited the gains.

The dollar earlier during the day, hit a fresh two-decade high against a basket of currencies, before slipping into the negative territory, as the Bank of England stepped in to prop up the gilt market. A weaker dollar makes greenback priced metals cheaper for buyers holding other currencies.

Inventories of metals which continue to be at historically low levels at a time when many smelters are reducing production, were another factor supporting metals.

Outlook:Optimism from the major metals consumer China might lift the metal prices up, however, a strong dollar will act as a major headwind for the metal prices.

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