Precious metals complex to remain highly volatile on global cues

London (Dec 11)  After weeks of rangebound trading, gold surged above $1,240 an ounce and closed the week at highest level in the last five months.

In the last few months, gold consolidated in a range of $1,180-1,250 and this month, weakness in the dollar following expectation that the Federal Reserve may go slow on raising rates supported the bullions on lower levels.

It seems most market participants remained on the sideline ahead of the important economic events that were lined up last week starting with G-20 meeting, wherein the US agreed to a 90-day ceasefire in its trade war with China

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But it seems that the US President is no mood to keep things peaceful. US markets were hit hard as the trade war news flow again started to take control of the market. US president Trump has threatened to place “major tariffs” on Chinese goods imported into the United States if his administration is unable to reach an effective trade deal with Beijing.

Crude prices rallied before the end of the week, and gained 5 percent as market reacted to the new production cut agreement. OPEC on December 7 announced it will reduce overall production among its members by 1.2 million bpd during the first six months of 2019 in an effort to stave off a global glut in supplies and prop up prices.

The recent decline in crude prices also came as jitters pegged to international trade relations between China and the US escalated, and raised concerns about demand for oil. Market tension intensified after the arrest of Huawei Technologies’s chief financial officer, Meng Wanzhou, in Canada at the request of the US.

Gold

From the US, a number of economic data were released but reaction on the dollar was muted. Dollar against its major crosses closed the week at 96.51 and major reaction was seen after the release of non-farm payrolls number. Data showed the US economy added 155,000 jobs in November compared to 200,000 job addition in the previous month.

Unemployment rate was at 3.7 percent. Wage growth rose in line with forecasts, keeping the Fed on track to hike interest rates this month. But the report indicated that the labour market may not be as strong as hoped, easing pressure on the Fed to keep hiking rates in 2019.

Earlier in the week, private payrolls number disappointed as it showed the private sector added 179,000 jobs in November compared to job addition of 225,000 jobs in the previous month.

In the G20 meeting, US and Chinese President agreed to a ceasefire in their bitter trade war and both the countries agreed they will try to have this “transaction” completed within the next 90 days, but if this does not happen then the 10 percent tariffs will be raised to 25 percent.

The encounter came shortly after the Group of 20 industrialised nations backed an overhaul of the WTO, which regulates international trade disputes, marking a victory for Trump, a sharp critic of the organization.

After the G20 summit, market participants will now be keeping an eye on the FOMC policy statement that is scheduled next week, wherein a rate hike is factored in as of now.

Gold failed to break an important resistance of $1,240 in the previous week and witnessed selling pressure at higher levels, but losses for the commodity were limited after investment demand rose last week.

Investment demand for gold remained robust and for the week ended November 25. Total gold holdings added another 3.07 tonnes and total gold holding stood at 1679.56 tonnes.

On the other hand, silver ETFs for the week ended Nov 25 added 17.52 tonnes and holding stood at 10,109.16 tonnes. CFTC data showed gold speculators unwinded their long positions and turned on the short side after remaining long for four successive weeks.

Base metals

LME copper prices ended in the green after some relief on the trade tariff front. The metal has been stuck in a tight range on signs of weakness in demand and macro related growth worries.

China is slowing due to the ongoing trade conflict with US. This has led to a reduction in China’s growth outlook and furthermore, the country’s GDP is expected to slow towards 6.2 percent in 2019 from 6.5 percent this year.

Copper has very low exchange inventories. The premium for cash copper over the three month price was at $9.50 a tonne, down from a peak of $44 in late November, indicating increased nearby supply. LME copper stocks are at their lowest in a decade.

The major supporting factor is the lower inventory levels, which may help stabilise the prices. The downside pressure on MCX Copper prices will increase if the Fed raises its interest rate for the fourth time this year in its upcoming policy meeting.

MoneyControl

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