GOLD In the next week, we believe that gold may not see any significant change in its direction. However, the economic data are likely to provide fresh cues on gold. The next big push for gold prices could be the U.S. nonfarm payroll data which is expected in the next week. This economic data should definitely bring lot of volatility in the gold prices. Since prices have been continuously subdued, we could expect a smart recovery in the prices though the trend still holds bearish. In fact, the technical charts are almost suggesting a bearish trend on gold prices. Apart from the economic data, the monetary standpoint related to quantitative easing in the US is keeping gold prices lower while developed nations equities are raising continuously. Although there has been no concrete decision on the QE tapering program as of now, there is lots of anticipation that gold is trading down and possibly, after a smart recovery, we may still continue to hold a bearish view on gold. As discussed above, the euro has no impact on gold these days. However, if the euro by any means plunges, the dollar might advance and pull gold prices lower. We have no major economic data expected from Asia in the next week while the rupee’s performance could be an important factor to look at. In the last week, the rupee appreciated over 0.50% and, it is likely that to remain slightly strong against the US dollar. In this regard, gains in gold prices might remain pressurized. Another important factor about Indian gold is that its prices for the February delivery are trading at Rs 29270, almost down by Rs 2000 from its immediate delivery December futures. This indicates that the spot demand is very high and so, the market is in backwardness. However, in such a situation, we wish to be a little cautious as Indian traders might find February futures gold prices undervalued, because of which a good amount of buying could be noticed. We wish to remain cautious while suggesting trade ideas in gold February futures in the near-term. However, if gold futures at the global market correct faster, a similar kind impact could also be felt on the local future contracts of gold.
From the global front, since the December futures contract in-tension period is beginning from 30th November, most of the trading volumes have started to move to the next active contract. If we look at the February futures, volumes and the open interest have increased substantially along with the aggregate volumes and, open interests have also surged while the change in the weekly prices is minimal and indecisive as well. This indicates that the market will now require a fresh trigger to set the trend. As discussed above, the non-farm payrolls numbers are certainly likely to bring in a lot of volatility in the prices and, we believe that any surge in the prices could be a good selling zone. As far as Indian futures are concerned, we continue to hold a bearish view but would like to remain on the selling side from the higher levels. Our in-house technical study suggests that as long as the market holds the key resistance levels of Rs 29650, we would like to remain on the selling side in the gold futures contract in the next week. Lastly, there has been no development on the gold investment front. In the last week, SPDR gold holdings have fallen from 852 MT to 843 MT and there is no sign of any demand coming in gold and gold-related derivative products from the west.
Looking at the above scenario, we hold a bearish view on gold for the next week while we recommend selling from the higher levels
SILVER has shown no change from its previous week’s close as of 4:30 PM IST and is trading at $19.85. After four consecutive weeks of falling, prices have halted for a while. As discussed in the gold section, trade participation has been lower especially from the US due to long weekend holiday owing to Thanksgiving Day. If we look at the trading participation, the volumes and open interests have also been lower. However, due to the position shifting from December to March ahead of the December contract expiry, the aggregate volumes have spiked up a little. Since prices have not moved much in the last week, we believe that the markets now need fresh cues. At the local market, the most active March contract futures prices have traded at Rs 45,700, down by Rs 300 from the previous close. Since the rupee has appreciated by over half a percent in the last week, the losses at the local market in silver prices were marginally higher than that of COMEX platform. If we talk about the spot market, the activities have been very quiet post the festival season. We would like to remind our readers that a few weeks ago we paid a lot of attention to eastern demand on precious metals, which are now calm while western demand has been quite low since several months. So, we believe that silver may now remain exposed to the bearish trend. As far as next week is concerned, we sense that the market may remain cautious and would seek a fresh trigger for setting up a trend. As discussed in our gold analysis section, a few key economic data are likely to be crucial in the market like the US non-farm payrolls numbers, which could bring in a lot of volatility in silver prices. So, we might see a good movement in the prices.
In other terms, silver which also takes cues from the base metals sector may continue to take cues from the same in the next week. We have been seeing a very sideways to very relentless trend in base metals and so, any fresh trend would also help silver prices to move on either side.
An added interesting fact that we would like to cite in this report on silver is that the silver is trading in a con-tango, unlike gold. As explained, gold futures are in backwardness due to higher spot demand while silver spot demand is moderate and futures demand is marginally higher. Hence, there is a difference over Rs 700 between the two consecutive contracts or between the spot and most active futures contract. We believe that this difference may continue to keep in the market, which might keep the prices lower in the near-term. Also, as discussed, a weak global trend on speculation that signs of a strengthening US economy might reduce demand for the precious metals as a safe haven also influenced the sentiment. So, both gold and silver might remain under pressure.
The detailed economic data analysis and events are explained in our weekly economic report. Overall, we suggest cautious trade in silver in the next week.
CRUDE OIL prices for most active January expiry at the NYMEX recorded its seventh weekly loss during the last eight as markets continued to take broad bearish factors out of continued crude oil supply, particularly in the US while the negativism was supported by weaker than expected economic data from the US. By the evening session in the Indian markets on Friday (IST) NYMEX January expiry oil was trading at $92.80 per barrel, making a loss of 2.15% for the week under review whereas in the domestic markets at MCX, oil for December settlement was down by 2.9% to Rs 5820 per barrel. Modestly higher loss in local markets was an affect of marginal appreciation in the Indian Rupee against the US Dollar.
Overall, the WTI has consistently remained on a weaker note for more than two months backed by continued rise in the crude supply number from the US. Last week too, the US department of energy reported crude inventories for the week ended 22nd November advanced by 2.95 million barrels almost in-line with our expectations though higher by nearly four times of the broader markets forecasts. The inventory report said crude stockpiles jumped up to above 391 million barrels mark on a cumulative basis and marked its highest levels since June this year. Added to the negativism was the fact that stockpiles at Cushing, the delivery point for WTI actuated for the seventh week in a row to over 40 million barrels.
Though the product related inventories came on a mixed note with especially the distillate inventory falling by 1.8 million barrels, positive cues from that were negated by overall rise in the inventory. As we have stated earlier too, gradually as we enter the peak winter season in the US; consumption for distillate would continue to rise led by rise in demand for heating. The story runs in such a way that on one side refiners continue to come back to the markets post their seasonal maintenance period which would coincide with the winter demand for oil. Herein, we would see continued increase in the refinery utilization rates while on one side distillate and other related product inventories would see continued fall from mid-December until at-least February month. The gasoline stockpiles on the other side would see extended increase during this period. In case the winter demand remains strong, we could see a smart structural up move in the crude oil prices for couple of weeks in a row. However, we feel that till mid-December we can continue to hold our bearish outlook on the commodity which is marred by lower demand and persistently higher supplies
In some other related cues which put additional pressure to the oil prices was a recent update over supply increase from the OPEC. Tanker tracker, Oil Movements recently said that OPEC is likely to increase crude exports through mid-December by nearly 3%. As reported by Bloomberg, the OPEC is expected to increase shipments by 700,000 barrels a day to 24.05 million barrels in the four weeks to December 14 to cover up the extra demand of oil in winter. The figures excluded oil production number from Angola and Ecuador
While this news had a modest negative impact for both the WTI and the Brent, we have seen very smart divergence between the two global benchmarks during the week. News report showed, Libya was once again witnessing clashes amongst the military and the rebel group in the eastern part of the country from where the nation pumps more than 60% of its crude. This fresh round of negativity over oil supply from Libya along with inherent weakness in WTI drove the spread between the two oil benchmarks to their highest levels in more than eight months. During the week Brent-WTI spread touched a high near the $19.50 per barrel mark before cooling-off a bit towards $18 per barrel as of Friday evening. We feel the near term spread between the benchmarks is likely to remain in a range between $20 on the higher side to $15 on the lower side with the bias on the higher side.
If one looks at the PVO side on a weekly basis in the WTI, the January contract saw its volumes decline by nearly 37% whereas the Open interest was nearly unchanged. This data is as per the reporting from Bloomberg till Friday evening (IST). While we feel the drop in volumes was ok due to the fact that US had a truncated trading session, OI was nearly flat as market lacked fresh participation. Though we agree it would be difficult to comment based on the on the current weeks PVO numbers, broader outlook for the commodity continues to be on the weaker side.
Next week, we have number of important economic readings both from the European and US region wherein mainly the US would see major indicators on the manufacturing, housing, construction, GDP and payrolls numbers. While we feel there is a chance for bullishness out of economic data from the US, we feel optimism on account of economic data would be countered by increase in speculation over tapering by the Fed. The details regarding our economic outlook are available in our weekly economy report. Based on a cumulative basis, we feel the downside in the WTI crude oil prices is here to stay for the near-term and we recommend selling on pull-backs for the next week. The risk factor next week would be the higher than expected fall in distillate stocks in the forthcoming inventory report.
SELL CRUDE OIL MCX DEC ON RISE NEAR 5870-5890 SL 6060 TGT 5725-5625
SELL GOLD MCX FEB ON RISE NEAR 29375-29400 SL 29650 TGT 29100-28950
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