By Ravindra V Rao, CMT, VP-Head Commodity Research at Kotak Securities

The optimism that had propelled risky assets forward took a backseat this week as investors carefully assessed recent statements from major global central banks. Anticipation for clues on the future trajectory of monetary policies kept market participants on edge.

The week commenced on a positive note, driven by signs of cooling US inflation as indicated by Core PCE’s sluggish growth in June and expectations of substantial stimulus announcements from China. However, market confidence took a hit after Fitch Ratings downgraded the US’ sovereign credit rating from AAA to AA+. This decision was attributed to the expanding fiscal deficit and a concerning deterioration in governance over the past two decades.

The unexpected resilience of the private payrolls reports further fueled a resurgence in the greenback, which reached a one-month high of 102.84. The much-anticipated non-farm payrolls (NFP) data, released on Friday, presented mixed signals. While the unemployment rate and job additions fell beyond expectations, average hourly earnings experienced a more substantial increase than predicted. This triggered a bout of profit-taking in the greenback.

In the realm of commodities, COMEX Gold experienced a notable decline, marking its steepest weekly drop in six weeks. This decrease was driven by the resilient job market, which strengthened the Fed’s case for raising rates. Silver mirrored this downward trend, losing approximately 3 percent over the week due to the weakness in both gold and industrial metals. Investment demand for bullion waned, evident in reductions in both SPDR and iShares holdings.

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In terms of price action, COMEX Gold is expected to find support around $1,936 per troy ounce, while COMEX Silver may be supported near the $23.10 per troy ounce mark, an important 200 DMA support level.

The week witnessed LME base metals starting on a positive note, enjoying a decent rally, and ending July with its most substantial monthly gains since January. However, prices retreated from the earlier week’s monthly highs, largely due to China refraining from announcing substantial measures to boost domestic consumption. Despite economic weaknesses and growing stresses in property markets, concrete steps were notably absent.

In contrast, Crude oil’s strong fundamentals remained steadfast, leading to a sixth consecutive week of price increases. Saudi Arabia extended its independent 1 million barrel-a-day oil output cut to September, while Russia sustained its voluntary reduction, albeit tapering its 500,000-bpd (barrels per day) export cut for August to 300,000 bpd for September. Our previous article predicted NYMEX Crude prices approaching the $82.50 per barrel objective, which indeed materialized.

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Now, attention turns towards the next robust resistance at $83.80 per barrel. This level poses a significant challenge for bulls due to its status as a multi-month resistance zone. Should the attempt to breach this level prove unsuccessful, it could result in a period of consolidation within the range of $79.50 to $83.80 per barrel.

In the week ahead, the spotlight will be on the release of inflation data from both the US and China. A potential decline in US inflation would likely be well-received by investors. On the other hand, if Chinese price pressures continue to ease, it could indicate a delicate economic recovery, potentially amplifying speculations about a potential RRR cut and policy assistance for private developers. This would further elevate the already heightened expectations in this regard.

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