Gold soared 3% in the previous week, settling at $1352.60 per Troy ounce while December futures, the most active contract at the domestic markets ended at Rs 30,710 per 10 grams. Gold prices continue to trade higher, supported by a weak dollar and higher euro. Meanwhile, gold is rising, aided by the inherent demand seen from the eastern part of the globe, especially from India ahead of festive season. In India, physical gold is trading more than Rs 1000 premium over futures per 10 grams at Rs 32,000. Along with the demand from India, the government’s intervention on gold imports is also pushing gold prices higher. Likewise, China is also consuming a good amount of gold, supporting the up move in prices. However, from the western front, we are seeing a continuous sell-off in paper gold in the form of investment. In the last week, gold ETFs at the world’s largest gold trust, the SPDR showed a decline in gold holdings from 810 tons to 788 tons. Another interesting fact to note these days is that, the COMEX warehouse inventory of gold has nosedived sharply, suggesting a selling off of gold ETFs and ETPs by the western nations, causing Asia to take physical deliveries of gold.
Weak economic data from the west is also pushing gold prices higher. In the last week, weaker-than-expected jobs data from the US supported gold to trade higher. In the meanwhile, European data is coming in moderately better, supporting the euro to trade higher, the impact of which is seen in gold. Likewise, there has been good demand coming from India, supporting higher trade in gold prices. As far as next week is concerned, we believe that gold prices will trade higher. Due to Diwali, a major festival in India, gold prices might continue to trade higher. However, gold might also trade highly volatile in the next week ahead of a huge number of economic data expected from the US, Europe and Asia. Especially, the US data are likely to be crucial and among them, the FOMC rate decision is likely to be important and might keep the dollar volatile, impacting gold.
Strategy:
1) We believe that gold may trade higher in the next week while volatility could be higher. We recommend intraday trades only
2) Globally, if the euro makes a high in the near-future, we shall recommend booking all long positions in gold
3) $1360 and $1375 are the crucial levels for the next week
4) Domestically, gold is expected to continue its bullish trend ahead of festival demand and so, physical premiums are going to rise further in the next week
Silver prices traded higher along with gold in the last week to settle at $22.52, up by 2.93% for the December delivery of COMEX, a division of NYMEX. Likewise, the December contract at the domestic market ended the week at Rs 49,707, up by 3.14%. We have witnessed a slight disparity in silver prices on the two exchanges as the rupee has depreciated against the dollar by 0.359%, settling the week at Rs 61.45 per dollar. Silver prices have surged along with gold due to a lower dollar and appreciating euro. Besides, there is good demand from India ahead of the festive season, pushing precious metals higher and so, silver prices have also surged higher. The base metals complex has also traded higher in the last week, with an average gain of 1% barring copper, which has also supported silver prices to trade higher. The investment demand, which is relatively better in silver than gold these days has surged in the last week by 1.30% at the I-share silver trust, which also pushed silver prices higher. In the last week, silver has outperformed gold. Therefore, the gold-silver ratio has increased slightly from 60.054 to 60.057. Another important point that we have noticed this week is that Asian equities have underperformed the rest in the world. In the last week, Asian equities have ended on a negative note while the US and European equities ended higher, supporting higher trade in silver. We could have seen more gains in silver prices if the Asian equities were also on a positive note. As far as next week is concerned, there are many economic releases expected from across the globe. Since there has not been any change in silver’s fundamentals, the market may take cues from the economic releases. We believe that the US data may turn negative as most of them are October and September figures, while the upcoming FOMC meet would be crucial for all the financial asset classes, including silver. We believe that in the FOMC meet, the Fed Is expected to discuss extending the tapering, which may keep the dollar subdued, because of which silver might get an additional boost. Likewise, we have few data from Europe, which are likely to portray a mixed to positive outlook on the economy. From Asia, we have the monetary policy of India, which is likely to provide a positive stance on the rupee and therefore, Indian silver prices might underperform global silver prices. However, due to the festive demand, we believe that Indian physical silver may continue to remain in a premium over the futures. Overall, we believe that silver prices will remain higher in the next week, while it may remain vulnerable towards the end of the week.
Base metals saw volatile trading this week, with barring copper which ended the week on a marginally negative note the rest of the pack managed to close with healthy gains of over 1.7% on average. Optimism in the metals complex was backed by expectations that the Fed would not start to taper its asset purchase program in the near – term, along with mixed to positive corporate earnings in the US. A weaker dollar and stronger euro also aided the broader gains in metals while there were few but important economic cues from China which further supported optimism. By the end of the week, Nickel was the major gainer, with a 2.4% increase and prices closing at $1 4580/MT at the LME trading platform. Amongst the other industrial metals, lead was the second biggest gainer, with gains of over 1.5%. Zinc and Aluminum for the 3M forward contract at LME gained by 1.3% and 1.7% respectively. Copper was the alone under performer compared to its peers as the commodity took negative cues from the prevailing credit crunch in the world’s second largest economy, with the write – off on bad loans more than tripled by major Chinese banks. At the MCX markets in India, gains in the metals complex for the October expiry were more or less in-line with the price movement at the LME amidst a marginal depreciation in the rupee against the Dollar. During the coming week, we could see high volatility in the prices as we have major economic readings from US and Asia. Amongst the important indicators for the base metals pack, we have US industrial production, pending home sales followed by important ADP unemployment and the crucial FOMC rate decision on Wednesday. This would be followed by the critical ISM manufacturing PMI and jobless claims data. We remain cautiously bearish on the data post the reopening of the US government. There are other important economic readings from the EU and the Asian region. We recommend that traders check the detailed economic review and outlook for the coming week in our Weekly Economic Report. Coming to Asia, last week we saw the Chinese Manufacturing PMI number increasing, which came in better- than -expectations and aided the optimism in the metals basket. The durable goods orders were also released which had a positive impact on mainly aluminum, due to the growth in transportation and aviation segment. In the coming week, we maintain our bullish stance on lead. The commodity is outperforming its peers, backed by the fact that the battery metal has remained in a demand- deficit from the beginning of the year till August. The deficit figure stands at around 234,000 tons till August and we expect the supply side constraints to continue over medium-term. We continue to maintain our bearish view on copper for the coming week, as the metal has fallen into supply surplus and is currently standing around 150,000 tons for the month of July according to the ICSG. We believe that the supply surplus situation will continue till the end of this year. Nickel extended its gain from the previous week and took positive cues from the Indonesian government’s policy to ban exports of nickel ore. However, on the inventory front, nickel stocks continue to hover around the 230,000 MT mark. We maintain a cautious ly positive outlook on the commodity for the week. Amongst others, we maintain a ranged view on aluminum. We feel that even though the positive price performance on the back of an increase in aluminum exports from Japan, the commodity might remain under pressure due to a supply surplus.
Global equity markets depicted a mixed picture during the week with the MSCI Asia trading mostly positive for the week though closed sharply in the red. In developed economies MSCI USA and MSCI Europe ended the week on a marginally positive note taking bullish cues that the US Fed would not taper in the near term . US equities closed in the green for the week, in spite of negative economic data on expectations that the Fed would not start tapering its bond – buying program which was supported by mixed to positive corporate earnings reports. European equities traded higher for the first half of the week however, they pared their gains towards the end of the week due to weak PMI numbers from the Euro -zone and negative IFO numbers from Germany. Most of the commodities including bullion and base metals closed in the green on the back of expectations on continuation of loose monetary policy in the US whereas a weaker dollar further supported the upside in the above -mentioned commodity segment. However, energy closed in the red for the week mainly due to negative weekly inventory data from the US. Last week, we saw host of major economic releases from the US which were earlier postponed due to the government shut down. Most of the economic data like jobless claims, non -farm payrolls and existing home sales were negative, which weighed on the dollar index. From the euro -zone, important readings such as the PMI numbers and consumer confidence came in negative. PMI data and IFO numbers from Germany also declined. Overall, the economic data from the euro-zone was on a weaker note, which should have had a slightly negative impact on the euro. Though, the shared currency closed positively for the week as it took strength out of weak dollar. In Asia, China’s manufacturing PMI increased at a decent pace while Japanese industrial activity also increased, which supported the yen.