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Asian Metals Market Update: Supply-side pressures need to ease

There will be position squaring and rebuilding by traders in LBMA and LME as they open after a long holiday.

Weekend developments are (a) European companies have been allowed to import a limited amount of crude oil from Venezuela. (b) Iran may be allowed to sell more crude oil without any new nuclear deal. (c) U.S. mulls lifting some China tariffs to fight inflation. U.S. Commerce Secretary Gina Raimondo said on Sunday that President Joe Biden has asked his team to look at the option of lifting some tariffs on China that were put into place by former President Donald Trump, to combat the current high inflation. However, tariffs on steel and aluminum to protect U.S. workers and the steel industry will continue. OUR VIEW: All the moves if implemented on a war footing will reduce inflation. Lower inflation will imply a slower pace of interest rate hikes by central banks. One needs to watch how quickly they are implemented. Further, these moves are purely political, before the US senate elections in November. It remains to be seen whether crude oil prices form a medium-term top.

London closing last week and its impact

London was closed for two days last week. London closing had impacted the price of precious metals and base metals. Physical gold price and physical silver price in India are determined by London AM Fix and London PM Fix. AM/PM fixes are used by large physical dealers all over the world to place buy orders. LME copper and LME base metal price dictates global industrial metal price. This is one of the reason why Tuesday’s daily close is very crucial for me. Traders in the UK will need two days to adjust to last week’s developments.

NFP and the way forward w.r.t interest rates

U.S. economy added 390,000 NFP jobs in May, with the unemployment rate holding steady at 3.6% for a third straight month. This has bolstered expectations of interest rate hikes beyond the July meeting into September and November. Federal Reserve officials have been speaking of an aggressive pace of interest rate hikes beyond July. This is the reason why gold and silver fell sharply after the NFP numbers

There is a lagging impact on inflation, whenever central banks raise interest rates. Federal Reserve and most central banks will raise interest rates this month. Headline inflation globally will cool only from August. Inflation numbers of the June to August period is crucial for the world.

Supply-side pressures need to ease for inflation pressures to reduce. Copper rose sharply last week, partly on mine supply disruption from Las Bambas copper mine in Peru. Two fires broke out at key copper projects this week, hitting MMG Ltd’s Las Bambas copper mine and Southern Copper Corp’s planned Los Chancas project, amid escalating local protests. Supply reduction will always increase inflation pressures.

One needs to wait and watch on the global economic scenario till the 26th-27th July FOMC meet and then decide on the Christmas trading strategy for gold and silver. If gold and silver trade with a bearish bias till 26th – 27th July, then use it to invest for Diwali and Christmas.

Crude Oil

Crude rose despite Opec raising production as supplies will still be unable to meet the demand in northern hemisphere. The world does not have supplies from three key crude oil producers (i) Iran. (ii) Venezuela and (iii) Russia. USA and NATO alliance are holding a ransom on energy prices by not allowing Iran and Venezuela to sell freely. Unofficial reports suggest that crude oil producers are making an open profit of $60 per barrel. Inflation will fall only on paper or due to a higher base effect. The real inflation will be very high as long as crude oil and natural gas price continues to rise.

My investment strategy will be to buy naked put options in Nymex crude oil for end June 2023 and end June 2024 with a strike price of $60.00.

COMEX GOLD AUGUST 2022 (current market price $1858.15)

  • 50 days moving average: $1897.20.
  • 100 days moving average: $1897.40
  • 200 days moving average: $1849.40.
  • 400 days moving average: $1828.20
  • 100 week moving average: $1854.70
  • 7-day view: (a) Gold has to trade over $1849.40-$1854.70 zone this week to rise to $1897.40 and $1913.40.
  • Crash/bearish trend will be there if gold does not break $1897.40 by 17th June to $1801.80 and $1776.60 and $1724.50.
  • Gold will also crash if it trades below $1849.40 any day in USA session to $1828.20, $1813.40 and $1787.30.

A bit on how to trade

Gold, silver, and copper are the easiest to trade. Crude oil and natural gas are day traders’ paradise. In my view, most of the losses in crude oil and natural gas are due to (a) not using stop losses and (b) Leaving buy/sell for the next trading day. Determine your risk profile à choose the commodity based on your risk profile and make the trade with some strict trailing stop loss.

Never ever trade with a mindset to recover the losses from previous trade or past losses. My experience is that your losses will only increase if anyone has a wrong mindset before the trade. Intraday trading and short term trading is ninety percent a mental game.

MCX GOLD AUGUST 2022 (current market price Rs.51100.00)

  • 50 days moving average: Rs.51324
  • 100 days moving average: Rs.50700
  • One hundred percent retracement is between Rs.49230-Rs.49580 zone.
  • Weekly Supports: Rs.50061 and Rs.50483
  • Weekly Resistance: Rs.51200, Rs.51458, Rs.51700, Rs.51945 and Rs.52242.
  • 14-day view: (a) Gold has to trade over Rs.50483-Rs.50700 zone to rise to Rs.51945 and Rs.52788. (b) Gold will crash to Rs.49995 and Rs.49152 if it does not break Rs.51458 in the next two weeks.
  • 7 day view: Gold will crash only if it trades below Rs.50700 to Rs.50300 and Rs.49978 and more.
  • MCX Gold August needs a daily close over Rs.51550 for three consecutive days to start a another wave of rise to Rs.52955 and Rs.53513.

(prices are in Indian Rupees, usd/inr, above)

To the physical buyers of gold, silver, copper, zinc and aluminium

Do not buy aggressively this week. (unless price crashes). Factories in India and world over are preparing for exports in August and September. Asian exporters will ship at the most by end September to USA for Thanksgiving and Christmas sales. Given the volatility in industrial metal, it is of utmost importance to start preparing from the month of June. Indian exporters get maximum competition from Pakistan, Cambodia, and Thailand. (apart from China). Do not ignore the cost of industrial raw material. Either hedge in futures or buy physical metal aggressively in case price crashes. Either way you need to have information of day to day price moves.

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