Gold likely to remain choppy amid uncertainty in equity markets: Kotak Securities

The general bias in gold may be on the upside the dollar could remain under pressure ahead of the Fed meeting later this week.


Ravindra Rao

Comex gold was trading marginally higher at $1,955 per oz after a 0.7 percent gain last week that witnessed choppy trade in a broad range of $1,911-1,974.

Gold witnessed mixed trade, reflecting choppiness in equity markets and the US dollar index. We may see directionless trade continuing unless either side of the $ 1,900-2,000 range is broken. Additionally, choppy trade may also be witnessed due to positioning for the American central bank meetings this week, which may impact the currency movement.

The US equity market ended lower for the second consecutive week as players grew increasingly nervous about rising virus cases, uneven global economic recovery, rising US-China tensions and the Brexit uncertainty. Equity markets, however, managed to see some late-week recovery and extended the gains on September 14 on signs of progress on the vaccine front.

The dollar index has risen for the last two weeks amid Brexit uncertainty and increasing concerns about European economies amid mixed data and rising virus cases.

The dollar has, however, has come off four-week high amid mixed economic data, lower bond yields and positioning for the Fed meeting. Amid other factors, ETF flows have also been mixed, indicating a lack of confidence in investors.

Gold holdings with SPDR ETF fell by 4.96 tonnes on September 11 to 1247.997 tonnes. Funds saw marginal inflows earlier in the week. Gold may witness choppy trade unless there is more clarity in whether the recent sell-off in equity markets continues or not. However, the general bias may be on the upside as the dollar can remain under pressure ahead of the Fed meeting.

On LME, base metals trade in a narrow range after most, barring copper, ended the previous week on a lower note. The metals pack has turned choppy recently amid mixed cues on macro as well as fundamental front.

For the day, prices may seek support from a rebound in global equity indices amid renewed hopes of vaccine and hopes of further stimulus from major economies. Prices may also seek support from choppiness in the dollar and demand optimism from top consumer China.

Most economic releases from China continue to signal recovery in economic activity, fanning demand hopes from the region. Focus now shifts to August’s Industrial production and retail sales data, wherein both the reading are expected to show further improvement.

The gains may, however, be capped amid fragile risk appetite tracking simmering US-China tensions, growing worries over no-deal Brexit and surging virus cases, which threaten the nascent recovery.

On the fundamentals front, copper may continue to seek support from falling stocks at LME warehouse along with signs of tightness in the physical market and higher imports by China.

At LME, the copper stock fell by 6,900 tonnes last week, hitting its lowest level since November 2005 while those at SHFE fell by a modest 78 tonnes. In other metals, aluminium too may seek support from the steady draw down in stocks at LME warehouses. However, signs of ample supplies in the physical market along with rising global production may cap the upside.

At LME, aluminium stocks fell by 17,025 tonnes last week while at SHFE, they rose by a modest 1,913 tonnes. Zinc, too, may seek support from a decline in stocks at SHFE warehouses but higher stocks at LME and signs of ample supplies in the physical market may cap the upside.

Zinc stocks at SHFE fell by 15872 tonnes last week to hit their lowest since January 2020 while those at LME fell by a modest 350 tonnes but hovered near September 2018 high last month.

In case of lead, demand optimism following rebound in auto sales across major markets viz. China, US and Euro Zone may lend support, however, higher stocks at LME and signs of ample supplies may cap the upside. Lead stocks at LME rose by 7,625 tonnes and at 131,225 tonnes were at their highest level since July 2018 while those at SHFE rose by a modest 827 tonnes.

Nickel prices may seek support from robust demand from China’s stainless steel sector but uptrend in stocks across exchange warehouses may cap the upside. Nickel stocks at LME rose by 504 tonnes last week while those at SHFE fell by a modest 281 tonnes.

The metals pack may show mixed movement during the day amid mixed cues but overall bias for the day may be positive on upbeat risk appetite and demand optimism from China.

(The author is VP- Head Commodity Research at Kotak Securities)

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