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Below is Commodity Article by Mr. Saish Sandeep Sawant Dessai, Research Associate- Base Metals, Angel One Ltd

GOLD

The yellow metal is headed for yet another weekly fall due to a persistent rise in the dollar and concerns over hasty increases in US interest rates.

During the week prices slipped nearly to nine-month lows, eventually concluding with a cut of 3.7 percent. The eagerly anticipated US inflation data was announced this week, which surprised everyone as it was higher than what the market had predicted.

The inflation for June month soared to 9.1%, the highest since November 1981.  The Fed may unexpectedly raise rates by 100 basis points to combat the skyrocketing inflation, despite the fact that its hawkish policymakers are fully in favor of a 75 basis point increase.

Although gold is seen as an inflation hedge, the Fed's rising interest rate drives investors away from the non-yielding yellow metal. Other than that, the greenback dollar, which is now hovering around 20-year highs, continues to be the main hurdle, as a higher dollar makes gold less appealing to buyers holding other currencies.

Outlook: We expect gold to trade higher towards 50540 levels, a break of which could prompt the price to move higher to 50940 levels.   

CRUDE

After registering a positive performance in the previous week, crude prices came under pressure during the following week, as they slipped below the February 23rd lows, a day before Russia invaded Ukraine.

The pullback in crude came as, the largest importer China, announced certain restrictions in an effort to curb the new infections from a highly infectious subvariant of the virus coupled with persistent weaker demand from the second largest economy weighed on the prices.

Fears of an economic downturn, the US Fed's aggressive interest rate hike, and the repercussions of soaring inflation all contributed to the decline in crude oil prices. On the other side, the dollar index also rose during the week, rising to its highest point since October 2002.

Additionally, as oil is priced in US dollars, holders of foreign currencies will pay more for the commodity as the US dollar appreciates. Last but not least, demand for oil may further take a beating as the Federal Reserve is expected to increase interest rates by 100 basis points this month in response to the accelerating inflation.

Outlook: We expect crude to trade lower towards 7480 levels, a break of which could prompt the price to move lower to 7340 levels.

BASE METALS

The industrial metals continue to move southwards, as prices of all the metals end on a lower note, as LME Nickel was the top losing metal off the lot.

Individual metals, including copper, fell to 20-month lows while aluminum fell to one-year lows as a result of fresh Covid-19 restrictions in China coupled with fears of high-interest rates given the rising inflation in the US.

Meanwhile, concerns about an economic slowdown have dampened demand for industrial metals. The U.S. Federal Reserve is expected to raise rates in its upcoming meeting this month. These higher rates have increased fears of recession, which are now anticipated globally and in the US.

As the dollar is hovering near 20-year highs, which makes the metals priced in the dollar costlier for buyers holding other currencies, it can also reduce the demand for the metals.

However, the downside looks limited given encouraging developments from the world's largest consumer of metals, China. As lockdowns were eased, the nation's exports rose at the fastest rate in five months. Additionally, imports of copper increased by 15.5 percent in June compared to the previous month.

Outlook: While the improvement in the Chinese economy would limit the fall in metals, the expectation of a Fed rate hike would keep the metal prices under pressure.

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