Last week, the entire commodity complex was hit hard after the Fed’s comments dashed hopes of interest rate cuts in the coming months which boosted the dollar to higher levels.
Precious Metals closed this week in the red with Gold prices falling 1 percent and Silver prices ended with 2.3 percent losses. Base metals complex tracking global cues too ended the week in losses after added woes from poor Chinese economic data and a stronger dollar.
Copper, Lead and Nickel ended with 2 percent losses while Zinc and Aluminium managed to end the week with minimal gains. Energy prices maintained its course.
Crude oil ended lower by 2.5 percent on the expectation of higher supply while Natural gas continued to remain near lows of 2019.
Gold prices have stalled the upside since the past month after the market speculators trimmed the bets of interest rate cuts this year. The Fed’s slightly hawkish policy meeting last week pushed the dollar higher. Fed Powell said that the current lower level of inflation seemed to be transitory meaning the policy timing and the direction of next interest rate move may be on the upside. Also, US jobs data further gives clues to a resilient US economy.
India, one of the largest consumer of gold in the world, is now considering on reducing its import duty on gold from 10 percent to 4 percent. Further, investors selling heavily in exchange traded funds and hedge funds have added shorts while rising equities and strong economic data are lifting the dollar, thus creating pressure on Gold prices.
Positive outcome of US-China trade deal could increase risk appetite towards other assets creating further pressure on safe havens like Gold.
With the stable US economy, possibility of no rate cuts in 2019 cannot be negated. We hence expect Comex Gold prices to correct and fall towards USD 1240/oz in the coming quarter of 2019.
(The Author is Commodity Analyst at Narnolia Financial Advisors.)
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