Commodities witnessed southward journey in the week gone by.
The yellow metal declined due to a strong dollar. Better than forecast economic data from the US boosted rally in the greenback. Sales of new homes rose in December; service industries rebounded in February by more than forecast on strength in new orders.
The ISM non-manufacturing index registered the biggest gain in a year. According to WGC, global gold backed ETFs have seen withdrawals in February. None of the base metals had a positive move due to indecision surrounding the trade deal between the US and China and appreciating dollar. China lowered its economic growth targets due to trade war.
More pain came when OECD lowered world growth forecast. The global economy suffered more than expected from trade tensions and political uncertainty which are clouding prospects particularly in Europe, according to a gloomy report from the OECD. Meanwhile, China reported the lowest trade data in more than a year due to the New Year holiday and trade tensions.
Exports fell in February and imports also weakened due to the Lunar New Year shutdown and continued uncertainty from the trade talks. Crude oil weakened as EIA reported build up of inventories. According to the latest data, US crude oil production further increased to a record 12.1 million b/d, an increase of more than 2 million b/d since early 2018.
Gold witnessed a short covering on Friday after US reported weak non-farm payrolls. Going ahead, a clear break-out above $1,300 will confirm new trend in short term. If the rally in the dollar looses momentum, the precious metals may rally in coming weeks. US is likely to post better than forecast economic data. Hence, the dollar may rise, putting pressure on the yellow metal.
On March 8, Jerome Powell said that downside risks have increased due to Brexit and trade war between US and China. He also said the growth has slowed in China, Western Europe and US. Hence gold may stay supportive after these statements. The Fed chair also said clearly that there seems no hurry to adjust interest rates but said the central bank would announce new details of plans for its balance sheet reasonably soon.
We believe bearish trend may continue in the industrial metals as couple of economic data came out which shattered traders' confidence in base metals. Chinese trade surplus shrank rapidly. Secondly, China lowered its economic growth targets as it is struggling with the US trade war, a slowing global economy and crackdown on debt. Hence, base metals are likely to trade with weak sentiment.
Traders would continue to monitor developments in the trade deal between US and China. Next week US may post strong empire manufacturing index and industrial production. Hence, this would cushion any sharp fall later in the week.
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