Gold, oil prices likely to remain choppy over recovery worries : Kotak Securities

Ravindra Rao

Comex gold slipped more than 0.5 percent and was trading near $ 1,801/oz after gaining a 0.7 percent on July 13. Gold has struggled to hold momentum after failing to break past $1,830 but is hovering around $1,800.

The metal, which has been moving in line with other commodities, was under pressure as market uncertainty has increased US dollar’s safe-haven appeal.

Coronavirus cases have been rising globally, however, a resurgence in cases in the US and other countries has unnerved market players as some states have rolled back reopening plans and reimposed some restrictions.

Also weighing on the market is increased tensions between the US and China and China and other countries over issues like handling of virus outbreak, Hong Kong security law and human rights violation.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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Tensions rose after the US on July 13 rejected China's disputed claims to offshore resources in most of the South China Sea, a move that Beijing criticised as inciting tensions in the region, reported Reuters.

Adding to it, the European Union said it was preparing counter-measures in response to Beijing's new security law for Hong Kong, Reuters said.

Market sentiment also weakened as data showed that Singapore’s economy entered a technical recession after shrinking by 41.2 percent in the second quarter compared to the previous quarter. While firmer US dollar pressurized gold, increasing uncertainty may increase the metal’s safe-haven appeal.

Gold may also benefit from renewed buying by ETF investors. Gold holdings with SPDR ETF rose by 3.5 tonne to 1203.965 tonne, first increase in three sessions and the highest level since 2013.

Gold may witness choppy trade as market players assess virus and geopolitical risks but the general bias may be on the upside amid increasing challenges to global economy.

NYMEX crude slipped more than 2 percent to trade near $ 39.3 a barrel after a 1.1 percent decline in the previous session. Crude was under pressure amid choppiness in equity markets and as market players waited for clarity on OPEC’s production policy.

Equity markets turned choppy as market players continued to assess rising virus cases and US-China and China-Australia tensions against hopes of continued economic recovery and signs of progress in vaccine development.

On the supply side, crude is pressurised by expectations that OPEC may reduce the pace of production cuts. OPEC and allies have agreed to cut output by 9.7 million barrels per day till July but are expected to reduce it to 7.7 million bpd starting August (as part of original April deal) due to stable prices and improving demand.

An OPEC monitoring committee is meeting on July 14 and 15 and is expected to recommend levels for future cuts. Market players are also worried about slowing pace of decline in US crude production.

As per US EIA’s latest drilling activity report, crude production from shale resources is expected to fall marginally from 7.546 million barrels per day in July to 7.49 million bpd in August, a two-year low.

Crude may remain choppy to negative ahead of inventory report as well as outcome of OPEC meeting.

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

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