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    Commodity outlook: Gold may soon hit $1,280 level; copper prices to remain volatile

    Synopsis

    International gold prices traded firm amid short covering and safe haven demand.

    GOLDBCCL-(2)
    International gold prices traded firm amid short covering and safe haven demand.

    Commodity Summary

    MCX
    By Pritam Kumar Patnaik

    International soybean complex prices again tumbled this week on concerns that a worsening trade fight with top importer China could slow exports and higher US stocks of the oilseed.

    There was little sign of a negotiated settlement of trade tensions between the United States and China. Beijing says it will impose an extra 25 per cent import duty on more than 500 US goods, including soybeans, on July 6 in retaliation for US tariffs on Chinese goods.

    Expectations for a large US crop yields this year added pressure to the prices, following ample rains in the US Midwest farm belt.

    The US Department of Agriculture is expected to report 72 per cent of the US soy crop is in good to excellent shape, down a point from a week ago but near historical highs for early summer.

    Soybean prices also remained under pressure, after private consultancy INTL FCStone said that Brazilian soybean farmers will harvest a record crop this season, raising the forecast by 217,000 MT after revising expected yields in Goiás state, the country's fourth largest producer.

    INTL FCStone said Brazil, the world's biggest soybean exporter, will collect 117.36 million tonnes of the beans this season after the revision. The new estimate increased the end-stock forecast to 1.26 MT, tight but almost doubles the government's forecast.

    The consultancy predicts Brazil will export 70 MT of soybeans in the current season, 2 MT less than the government's forecast. This also weighed on prices.

    Additionally, private analytics firm Informa Economics raised its forecast for its US soybean yield forecast to 49.8 bpa from 49.5 previously. Informa projected US 2018 soybean production at 4.425 billion bushels.

    Meanwhile the Commodity Futures Trading Commission's (CFTC) weekly commitments of traders report showed that noncommercial traders, a category that includes hedge funds, increased their net short position in soybeans.

    Indian soybean started the week on an upbeat note amid expectation that the government will hike MSP for Kharif crop. The move did occur eventually, after the central government hiked MSP for the crops to be marketed in 2018-19. For the 2018-19 crop season, MSP for Soybeans was increased to Rs 3,399 per quintal, an increase of Rs 349 per quintal, or an 11.4 per cent hike over last year's MSP.

    Rumours in the market are that most of the crops harvested during 2018-19 could be procured by the government this year. The government said however its limited purchases could cost it Rs 150 billion ($2.18 billion) this year, although industry officials say it is difficult to estimate actual spending, which depends on the quantity procured.

    However, after the initial strength the soybean prices fell during the week amid upbeat sowing prospects this year and weak overseas prices. Total oil seed area however remained on the lower side according to the official government data. It is reported that oilseed has been sown in 14.55 lakh hectares compared with 26 lakh hectares same time last year.

    Looking ahead, prices could continue to be influenced by good rainfall, which in turn could help increase sowing this year. According to IMD, weekly rainfall was above Long Period Average (LPA) by 1 per cent over the country as a whole.

    Prices could also be influenced by the trade tensions between US and China. However, many believe that this could be a blessing as China could look to other avenues to import soybeans.

    Technically, soybean July futures witnessed huge swings in last 2 weeks in which prices rose from Rs 3,386 to the high of Rs 3,650 level and then sharp correction towards Rs 3,530 level was seen. This has been overall trend in a range. During the range bound action it is important to wait for breakout. As of now Rs 3,600 and Rs 3,500 is the range. As compared to previous two weeks, momentum is slightly shifting on upside and moving average of 20 days is proxy for the same. Break of Rs 3,600 will be positive sign for a trend towards Rs 3,800 levels.

    Internationally, US Soybean Futures has continued to move lower which has brought prices at the crucial support zone. It will be important to see if fall gets arrested or not as RSI is at oversold territory. Any weekly close below $840 level will extend the down move towards $800 level. On upside $880 is important resistance.

    Cotton
    Cotton prices fell heavily in the overseas market as investors remained on the sidelines amid trade tensions between the United States, the world's biggest cotton exporter, and top consumer China.

    Speculators are not buying anything until they know what the US-China trade dispute is going to result in.

    China is putting pressure on the European Union to issue a strong joint statement against US President Donald Trump's trade policies at a summit later this month but is facing resistance, European officials said. The immediate concern, come July 6, is whether Chinese buyers will look to cancel previously bought cotton this season - a bearish factor if it materialises.

    The US Department of Agriculture will factor in China and Mexico's tariffs against American farm products in its global supply and demand crop report in July.

    Fundamentally, International Cotton Advisory Committee (ICAC) said that Cotton demand is increasing, with consumption projected to increase 5 per cent in 2018/19. Production decreases for USA and India, but increases for West Africa and Brazil are projected in 2018/19. Higher production will lead to a 3 per cent increase in stocks in 2017/18, after two years of decreases.

    Murky trade policies have dragged prices down from a season-high of 102 cents. Uncertainty in trade policies may have broad effects, disrupting stability in global trade and economic growth, a driver of consumer demand.

    Meanwhile, prices were also influenced by a bearish weekly crop report. The US Department of Agriculture in its weekly crop progress report released on Monday showed the 2018 US cotton crop was 43 per cent in good or excellent condition compared with 42 per cent a week ago and 54 per cent last year.

    On the domestic side, prices have been supported on the back of increase of MSP for the 2018-19 cotton crop. The MSP of cotton (medium staple variety) has been increased from Rs 4,020 to Rs 5,150, which is a 50 per cent increase over input costs of Rs 3,433. The MSP for cotton (long staple variety) has been hiked to Rs 5,450 from Rs 4,320 per quintal.

    So this increase could prompt farmers to increase acreage of cotton this year. Total cotton area however remained on the lower side according to the official government data. It is reported that cotton has been sown in 32.20 lakh hectares compared to 46.10 lakh hectares same time last year.

    Looking ahead for international prices, cotton could remain weak till the tensions between US and China subsides. Additionally, better crop this year could also keep a lid on prices in the short term.

    On the domestic side, with the increase in MSP, prices could see some correction as farmers could shift from pulses to cotton this year. However, weather could be important in the next few weeks or so. According to IMD, weekly rainfall was above Long Period Average (LPA) by 1 per cent over the country as a whole.

    Technically, on domestic side, MCX Cotton prices have continued to trade in a narrow range movement. After the selloff from Rs 23,580 to Rs 21,930 levels, such kind of consolidation indicates that bulls and bears are fighting to gain the control. As per basic technical analysis downside breakout is possible as consolidation post the sharp fall indicates continuous pattern. The Rs 22,700 is the important resistance whereas break below Rs 22,100 will suggests downside trend towards Rs 21,700 levels.

    Internationally, US Cotton has continued to tumble and made a low near $82 levels. Prices have broken the exponential moving average of 30 days decisively, which indicates that short term trend is reversing on downside. Now trend will remain in sell on rallies mode with $86 as crucial resistance on upside. Prices are expected to move lower towards $78 levels.

    Gold
    International gold prices were firm this week amid short covering and safe haven demand supported by rising trade tensions between US and China.

    Prices started lower as the US dollar rebounded against the basket of currencies amid fears of a trade war between the United States and China have helped weaken China's renminbi, the rupee and Japan's yen against the dollar.

    However after the initial fall, gold prices rebounded from a near seven-month low as the dollar eased. The dollar dropped after the US Chamber of Commerce denounced President Donald Trump's handling of global trade disputes, issuing a report that argued those tariffs and retaliation by US partners would boomerang badly on the economy.

    Gold also found support as the dollar stayed weak for the day and minutes of the Federal Reserve's June policy meeting were within market expectations for the pace of further interest rate hikes this year.

    US central bankers discussed whether recession lurked around the corner and expressed concerns global trade tensions could hit an economy that by most measures looked strong, minutes of the Federal Reserve's last policy meeting on June 12-13 showed.

    The minutes, which described a meeting in which the Fed raised interest rates for the second time this year, also suggested policymakers might soon signal that the Fed's rate hiking cycle was advanced enough that policy was no longer boosting nor constraining the economy.

    The minutes overall gave the impression of a central bank impressed by the US economy's strength and confident with its plans to continue raising rates, but also fixated on what might push the economy off its upward course.

    Hedge funds and money managers cut their net long positions in COMEX gold and silver contracts in the week to June 26.

    Domestic prices also rose this week, tracking firm overseas prices and a weaker rupee. Physical gold demand has been lackluster in India ending no price support.

    Imports into India fell 29.85 per cent year-on-year to $3.48 billion in May from a year ago. A weaker rupee so far in 2018 made gold imports costlier which combined with waning demand led to lower overseas purchases. Moreover, buyers preferred alternative investments as the equity market has been giving better returns lately.

    Additionally, exports also fell 13% in the first 11 months of the roll-out of the goods and services tax (GST) regime, according to the Gem & Jewellery Export Promotion Council (GJEPC), which attributed the decline to the new levy.

    Apart from 3% GST, levied from July 1, 2017 and GST has also led to a reduction in purchases by non-resident Indians (NRIs), according to jewellers.

    Looking ahead investors are awaiting the release of non-farm payrolls and unemployment data tonight. Upbeat data could support US Dollar and weaken gold prices and vice versa. Markets will also look to cues from the movement in the US Dollar in the international markets.

    Technically, Internationally, Comex Gold finally showed relief sign after the selloff of last 3 weeks. From the lows of $1237.60 prices made a high of $1261 levels. Post the same consolidation is ongoing in narrow range. On a weekly basis there is formation of Hammer candlestick pattern and psychology behind the same indicates that bulls are trying to gain control over prices. Recent rise has successfully broken the downward moving channel on upside which indicates positivity. Exponential moving average of 30 days which was acting resistance is now acting as support. Altogether indicates that short term positivity towards $1,280 is possible.

    Technically, on Domestic front, MCX Gold August Futures prices showed recovery from 30244 to the high of 30737 levels. This suggests that downfall of last few weeks is complete and now we can witness positivity. On downside 30500-400 should act as important support and on upside move towards 30900-31000 is possible.

    Copper
    International copper and most base metals slumped during the week after China's manufacturing growth tempered in June, reflecting a slowdown in the real economy and simmering trade tensions with the United States.

    Growth in China's manufacturing sector slowed in June after a better-than-expected performance in May, official data showed, as escalating trade tensions with the United States fuelled concerns about a slowdown in the world's second-biggest economy.

    The official Purchasing Managers' Index (PMI) fell to 51.5 in June, below analysts' forecast of 51.6 and down from 51.9 in May, but it remained well above the 50-point mark that separates growth from contraction for a 23rd straight month.

    Hedge funds and money managers cut their net long position in copper by 29,240 contracts to 22,061 contracts, CFTC data showed. This was the weakest position since early May in the week to June 26, U.S. Commodity Futures Trading Commission (CFTC) data showed.

    Fundamental news also weighed on prices. The energy and mines ministry said of Peru showed that the country produced slightly more copper in May from the same month a year earlier. Data showed that Copper production increased by 1.8% year to year to 214,141 MT in May.

    Other base metals like Zinc on LME gave up almost 8% as supply recovers after a year of deficit drove prices to decade highs and encouraged restarts while aluminium fell 2.75% as in China output continues to increase.

    However, trade tensions continue to dominate the base metal markets as U.S imposed import tariff on the Chinese products. Washington has said it would implement tariffs on $34 billion of Chinese imports on July 6, and Beijing has vowed to retaliate in kind on the same day. China was ready to act, but would not fire the first shot in a trade war with the United States, its finance ministry said.

    Domestic base metal prices also fell heavily tracking the global markets amid rising U.S and China trade tensions.

    Looking ahead Looking ahead investors are awaiting the release of non-farm payrolls and unemployment data tonight. Upbeat data could support US Dollar and weaken base metal prices and vice versa. Investors will await cues from cues from China to see whether the country imposes retaliatory tariffs on U.S.

    Technically, on domestic side, Copper August contract continued to tumble for 4th consecutive week and moved lower from the high of 453.20 to 427.55 levels in last week. This has brought prices near to the make or break levels. Since December 2016 prices have been managing to hold above 423-425 zone. Hence this time it will be important to see whether this legacy continues or it breaks the support zone. Weekly RSI has arrived at 43 level which was last seen in May 2017 and thus price action of next week will become crucial. Any move above 440 levels will be positive sign for a trend towards 455 levels. Open interest is at highest level at 24556 since start of 2018. Hence major volatility is expected in coming days.

    Internationally, Comex Copper broke below the crucial support of $2.90 and slipped towards $2.80 levels. On a weekly basis yet there are no reversal signs and hence this will keep overall trend on downside. Now, $2.77 is an important level to watch. Looking at the oversold territory of RSI some sideways action can be expected in between $2.80 and $2.90 level in next week.

    Castor Seed
    Technically, Castor Seed July Futures prices made a low at 3830 level in the month of June 2018 and since then upside rally towards 4362 level has been witnessed which is a gain of 13.90%. This rise has taken out resistance zone of 4340-4350 level which suggest that trend has reversed on upside. Exponential moving average of 50 days has been taken out which is positive sign. One should look for buying opportunity on dips towards 4300 level with 4150 as crucial support on downside. Prices are expected to move higher towards 4650 level in coming weeks.

    (Pritam Kumar Patnaik of Reliance Commodities analyses outlook for various commodities on weekends)



    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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