IGI Logo

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

GOLD

Gold prices continued to correct, as on Wednesday the yellow metal witnessed a 1.48 percent cut to end the day at 1738.3$ per ounce. Gold extended its selloff to an over nine-month low, hurt by a stronger dollar, while the Federal Reserve's June meeting minutes established a more restrictive monetary policy.

In recent months, investors seeking to protect themselves against growing recession fears have increasingly turned to the dollar, which has reached a two-decade high, making bullion pricier for overseas buyers.

The Fed minutes saw participants justifying the 75 basis point increase and a likely increase of 50 or 75 basis points later this month.

The opportunity cost of storing bullion, which pays no interest, increases as interest rates are raised in order to combat rising inflation.  More global central banks increased interest rates in June than in any other month in at least two decades.

Outlook: We expect gold to trade higher towards 50930 levels, break of which could prompt the price to move higher to 51330 levels.   

CRUDE

After witnessing a sharp sell-off the previous day, crude prices continued to witness the pullback as Brent ended with a 1.49 percent cut, whereas the NYMEX ended nearly 1 percent down, slipping below the $100 mark, as fears of a potential global recession spurred concerns about oil demand.

On Wednesday, both benchmarks reached their lowest since April 11. The decline comes after a sharp drop on Tuesday despite tight supplies. Along with other commodities like metals, oil prices have fallen as central banks around the world have hiked interest rates to combat inflation, stoking worries of a recession that might reduce demand for commodities.

Traders are watching for possible oil supply disruption at the Caspian Pipeline Consortium (CPC) , one of the largest pipelines in the world that transports oil from Kazakhstan to the Black Sea has been ordered by a Russian court to halt operations for 30 days.

Russia has already reduced gas flows via the Nord Stream 1 gas pipeline, which supplies Russian gas to Germany and other European states. A disagreement over equipment repairs has caused that pipeline to be only 40% full.

Outlook: We expect crude to trade lower towards 7660 levels, break of which could prompt the price to move lower to 7520 levels.   

BASE METALS

On Wednesday, except for copper and nickel, all the other metal managed to end on a positive note on the LME and MCX respectively.

Fears of a recession and new COVID-19 restrictions in the largest consumer China kept the price of copper under pressure as it continued to fall, reaching close to 20-month lows in the previous session.

The dollar continued to be strong, hitting a 20-year high against its rivals, making greenback-denominated metals expensive for other currency holders. The dollar might remain elevated due to the expectation of aggressive Federal Reserve rate hikes and the safe-haven appeal driven by concerns about a global recession may cause the dollar to remain strong.

The head of the International Monetary Fund stated that given the increased risks, a potential global recession could not be ruled out next year. The outlook for the world economy had dramatically worsened since April.

Outlook: We expect copper to trade higher towards 654 levels, break of which could prompt the price to move higher to 665 levels. 

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