Gold, metals, crude up on Fed move

Analysts say increase likely to be short-lived, as fundamental outlook on these seems bearish

The US Federal Reserve’s move to remove the word ‘patient’ from its rate outlook statement and moving the goal post for raising interest rates is seen as an immediate positive by traders to cut their short positions in gold.

Gold rebounded soon after the Fed’s statement on Wednesday. On the Multi Commodity Exchange (MCX) on Thursday, prices moved one per cent to Rs 25,884 per 10g. At Zaveri Bazar here, it closed Rs 190 higher at Rs 26,140 per 10g.

Metals were also up by one to two per cent on the London Metal Exchange (LME), as an interest rate rise is yet to happen. Copper and other metals were up one to two per cent on MCX futures, too.

The US Fed has indicated the next focus will be on the job market and it has set a condition of two per cent inflation and five per cent unemployment, down from 5.2 per cent. Hence, “bullion traders will watch the economic data closely”, said Gnanasekar Thiagarajan, who heads Commtrendz Research. According to him, Thursday’s recovery in gold prices is due to short covering as bears booked profit.

He sees $1,145 as a strong support from where gold recovered on Wednesday and $1,200 as resistance. However, a US rate rise is almost a given and hence, “any recovery could meet with selling at higher levels and the dollar will strengthen.”

Silver prices also went up. In Mumbai, it closed Rs 650 higher at Rs 36,300 a kg.

On the MCX, copper was up 2.4 per cent, aluminium by 1.3 per cent and nickel by 1.5 per cent, following recovery in the LME. On the latter, copper rose 1.3 per cent to $5,745 a tonne from Wednesday’s low of $5,621.50.

Interestingly, after the Fed statement, crude oil’s fall was arrested. Brent crude oil was quoting at $55 a barrel compared to Wednesday’s $53, while WTI was at $43. Abhishek Deshpande at Natixis Commodities Research said, “The Fed’s decision helped give some support to oil prices temporarily but the excess supply will eventually put pressure. For now, we are bearish on both Brent and WTI until June 15.”

Explaining: “We expect Brent to come under further pressure in the second quarter with the rising crude oil stocks and any positive decision on Iranian sanctions would further reduce Brent Index. WTI is suppressed even more as US oil stocks at Cushing are rapidly approaching working capacity and if they continue to fill up at the current rate. We expect crude oil stock builds should start to stabilise slowly in the third quarter as refineries globally come back from maintenance before that. However, recovery in prices would depend on the overhang of stocks in onshore and offshore storage by then.”