COMEX gold trades moderately lower near $2,005/oz after adding 0.7 percent gain yesterday which marked its second consecutive session in the green. Gold fell as low as $1,985.2/oz in intraday trade yesterday in reaction to upbeat US housing data and some US equity indices hitting record high level but recovered soon to end above the pivotal $2,000/oz mark.

Gold has recovered almost 8 percent from the lows set last week indicating that bullish momentum is still intact, however, higher volatility reflects lack of confidence about the sustainability of further gains. Mixed ETF flows also show that investors are unconvinced about the future price trend.

Gold holdings with SPDR ETF were unchanged yesterday at 1,252.37 tonnes after a modest inflow a day earlier. Weaker consumer demand also challenges the rise in gold price. Indian and Chinese gold prices are trading at a discount to international prices amid weaker offtake in the physical market.

Continuing strength in the US and global equity market also reduces gold’s appeal as an alternative asset. However, supporting gold price is continuing pressure on the US dollar, increasing virus concerns and deteriorating US-China relations.

The US dollar index slumped to May 2018 levels amid a retreat in bond yields and concerns about the political impasse over additional fiscal stimulus measures which offset upbeat housing market data. The US dollar is also under pressure amid positioning ahead of FOMC minutes as it may further emphasize on Fed’s downbeat growth outlook and dovish monetary policy stance.

US and China are at loggerheads over various issues and tensions have intensified amid retaliatory measures against each other. Gold has rebounded sharply from recent lows and is holding near the key $2,000/oz level which shows the possibility of extended gains. However, volatility may remain high and unless we see fresh positive triggers the upward momentum may exhaust soon.

COMEX Silver trades 1 percent lower near $27.8/oz after a 1.5 percent gain yesterday. Similar to gold, silver has also recovered sharply from recent lows indicating that the rally seen since early July remains intact. Apart from weakness in the US dollar, silver has also benefited from improving outlook for industrial demand amid recovery in China and global economy. Mixed ETF activity, however, shows that investors are unsure about future price direction.

Silver holdings with iShares ETF rose by 81.09 tonnes yesterday to 17,933.27 tonnes, after two consecutive days of outflows. Meanwhile, consumer demand is struggling to gain traction. On the domestic front, MCX Silver September ended yesterday at a steep discount of nearly $0.8/oz to the international market as lack of demand and higher supply kept domestic prices under pressure.

The oversupplied market is also evident from the widespread between MCX Silver and December contract and a sharp rise in stocks at exchange warehouses. The general strength in gold and industrial metals may keep silver prices supported however the rally may exhaust soon unless we see fresh investor inflows.

NYMEX natural gas trades moderately higher near $2.42/mmBtu after a 3.3% gain yesterday. Natural gas hit a high of $2.465/mmBtu in intraday trade yesterday, the highest level since Dec.2019. Natural gas trades higher today supported by expectations of higher cooling demand amid hot weather in most parts of US and a severe heatwave in California. Also supporting price is higher US LNG exports, upbeat US economic data and forecast of further decline in US gas production.

However, weighing on price is higher US gas stocks and concerns about the health of the US economy amid rising virus cases. Natural gas has continued to hit fresh highs indicating that the momentum is still positive and price may continue to benefit from higher weather-related demand. However, we may see some choppiness amid positioning for inventory report and also as price closes into next key level of $2.5/mmBtu. The focus may continue to be on US weather, storm activity in Atlantic and virus situation in the US.