Aggressive buying by China, demand for jewellery in India fuel silver prices

Last week bullion prices surged on the expectation of a US rate cut. Concerns over global slowdown made investors buy bullion as a safe-haven. The US Fed fund futures now price in more than two 25-basis point rate cuts by year-end, with one almost fully priced in by July.

Weak US economic data (weak job numbers) and the US-China trade dispute are clouding the global economic outlook.

For the week, gold prices ended flat at $1,341.58, recovering from a low of $1,328.41 on Monday, 10 June 2019. On June 17, the gold prices lost close to 1 percent, retreating from a 14-month high following a deal between the US and Mexico that averted a tariff war between the two nations.

This prompted investors to book profit in gold and invest in a riskier asset. However, concerns over a global economic slowdown and ongoing trade tension between US and China saw investors buy gold at lower levels.

Reflecting increased investor interest in gold, hedge funds and money managers raised their combined futures and options position in New York and London by 84,781 contracts to 1,17,915 during the week ended 4 June 2019.

In the domestic market prices have moved back up above Rs 33,000/10 grams after data showed that gold imports jumped in May by 49% from a year earlier to 116 MT, as softening in local prices during the key festival period boosted retail demand.

Additionally, the Reserve Bank of India (RBI) purchases also supported gold. RBI purchased 52.3 MT gold in FY19 to augment its foreign exchange reserves, according to the latest data released by the World Gold Council.

On the other hand, silver prices jumped last week as supply fell and spot premiums grew due to aggressive buying by China, which is buying the metal for industrial usage.

Additionally, the demand for silver jewellery from the US has pushed up the demand for the metal in India.

Looking ahead, most of the investors now are expecting a rate cut by the US Fed sooner than later. So, lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar.

Weak data and rising geopolitical tensions in the Middle-East will also continue to support the safe-haven appeal for the metals. So, prices could continue to move higher in the short term.

Internationally, gold spot could remain in a range from $1,330-1,375. A break above $1,375 could push prices to $1,400 levels.

Silver spot could remain in the range of $14.60-15.60. MCX Gold August 2019 can trade in the range of Rs 32,700 and Rs 33,600 levels per 10 grams. While MCX Silver July 2019 can trade in the range of Rs 36,900 and Rs 37,900 levels per kg.

Base Metals:

Copper: Sell MCX Copper June 2019 contract in the range of Rs 409-410 with a stop loss of Rs 416 and a target price of Rs 395.

Zinc: Sell MCX Zinc June 2019 contract in the range of Rs 204-205 with a stop loss of Rs 208 and a target price of Rs 198 levels.

Bullions:

Gold: Buy MCX Gold August 2019 contract in the range of Rs 33,050-33,100 with a stop loss of Rs 32,900 and a target price of Rs 33,500.

Silver: Buy MCX Silver July 2019 contract in the range of Rs 37,300-37,200 with a stop loss of Rs 36,800 and a target price of Rs 37,900-38,000 levels.

Agri Commodities:

RM Seed: Sell NCDEX RM Seed July 2019 contract in the range of Rs 3,950-3,960 with a stop loss of Rs 4,000 and a target price of Rs 3,870.

(The author is Head, Commodities, Reliance Commodities)

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