We also believe that large stimulus measures from China in response to an escalation in the Sino-US trade war would eventually drive metals prices higher
Last week, gold and silver prices remained rangebound with the downside remaining limited due to rising trade uncertainty and escalating middle-east tensions. China said it would hike tariffs on a range of US goods, striking back in its trade war with Washington. Additionally, US slapped sanctions on Chinese telecoms giant Huawei, escalating US-China trade tensions.
Hedge funds and money managers raised their net long positions by 9,281 contracts to 19,721 in COMEX gold in the week compared to May 7. The speculators also increased their net short position in silver by 639 contracts to 14,893. Meanwhile, SPDR Gold Trust fund said its holdings fell 0.4 percent to 733.23 MT this week. Holdings are now around its lowest levels since October 9, 2018.
Prices will continue to find support in the short run amid escalating trade war and rising tensions in the middle-east. This will lead to investor’s demand for the safe haven yellow metal. Internationally, gold spot rate could remain in a range from $1,275-1,310, while silver spot could remain in the range $14.20-15.10.
Crude on the rise due to tensions in Middle-East
Crude prices could end with gains this week amid rising middle-east tensions. Markets shrugged off fears over global economic growth amid a standoff in Sino-US trade talks. On the supply side, crude stocks rose 5.4 million barrels, surprising the markets who were expecting a decrease of 8,00,000 barrels. Nearly 1.8 million barrels were added to supply through the release from the US Strategic Petroleum Reserve.
Hedge funds cut their combined futures and options position in US crude futures in New York and London by 32,429 contracts to 275,699 during the week ending May 7, 2019. That was the lowest level since early April 2019. Meanwhile, Brent crude speculators on the Intercontinental Exchange (ICE) raised their net long positions by 1,806 contracts to 4,06,175 in the same week. That was the highest level since mid-October.
Heightened geopolitical tensions in the middle-east and anticipation that the United States and China could still reach an amicable solution to their trade dispute have rendered support to oil prices. At the same time, a full-blown trade war could have lasting consequences on global growth, seriously limiting the upside for energy demand.
Additionally, US oil output from seven major shale formations is expected to rise to a fresh peak of about 8.5 million barrels per day in June 2019, the US Energy Information Administration said. A falling demand and rising output could lead weakness in the longer run. So, Brent July 2019 contract on ICE could remain within the range from $70-75/barrel in the next week. NYMEX June 2019 contract could remain at $59.50-65/barrel.
Copper: All eyes on China
Most metals recouped some losses but ended last week on a weaker note amid rising trade tensions between the US and China. Additionally, China reported surprisingly weaker growth in retail sales and industrial output for the month of April, adding pressure on Beijing to continue to roll out more stimulus.
Hedge funds and money managers increased their bearish stance on copper during the week. Copper speculators raised net short positions by 17,012 contracts to 26,806.
The only metal to witness diverse trend from the metal complex was aluminium. Aluminium prices rose this week after news of production shutdowns at one of the country's largest smelters fuelled worries about supplies from the top producer. Xinfa Group, one of China's biggest aluminium smelters, is closing all production lines of its 2.8 million MT (per annum) alumina refinery in Shanxi, for an unspecified period owing to an environmental dispute.
Looking ahead, downside remained limited amid hopes the United States and China would forge a trade. We also believe that large stimulus measures from China in response to an escalation in the Sino-US trade war would eventually drive metals prices higher.
The next important event for the talks will be during the G-20 summit, where Trump and Jinping will meet and discuss further. Additionally, prices could also find support over reports of US President Donald Trump delaying a decision on imposing tariffs on cars and parts imported from EU, by up to six months, thereby avoiding opening yet another front in his global trade battles. Internationally, 3M Copper on LME could trade between $5,800-6,400/MT in the short run.
Technical Calls
Base Metals:
Aluminium: Buy MCX Aluminium May 2019 contract in the range of Rs 149-149.50 with a stop loss of Rs 147 and a target price of Rs 153.
Nickel: Buy MCX Nickel May 2019 contract in the range of Rs 449-450 with a stop loss of Rs 440 and a target price of Rs 465.
Copper: Sell MCX Copper June 2019 contract in the range of Rs 427-428 with a stop loss of Rs 433 and a target price of Rs 418.
Bullions:
Silver: Sell MCX Silver July 2019 contract in the range of Rs 36,700-36,750 with a stop loss of Rs 37,000 and a target price of Rs 36,300.
Energy
Crude oil: Buy MCX Crude Oil June 2019 contract in the range of Rs 4,420-4,440 with a stop loss of Rs 4,310 and a target price of Rs 4,600.
Agri commodities:
Cotton: Buy MCX Cotton June 2019 contract in the range of Rs 21,200-21,250 with a stop loss of Rs 20,900 and a target price of Rs 21,900.
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