Home Markets Weak Dollar and New Virus Strain Weigh on Crude as Gold gains; base metals supported by Chinese Industrial data

Weak Dollar and New Virus Strain Weigh on Crude as Gold gains; base metals supported by Chinese Industrial data

by Prathamesh Mallya (AVP- Research, Non-Agri Commodities and Currencies, Angel Broking Ltd.)
Jan 05, 2021
Weak Dollar and New Virus Strain Weigh on Crude as Gold gains; base metals supported by Chinese Industrial data, Market, KonexioNetwork.com

The new strain of coronavirus strain, which was detected in September 2019, is currently wreaking havoc across multiple countries. There are apprehensions that it will contribute to a fresh set of lockdowns with the U.K. already announcing a full lockdown across the country. In the U.S., the Dollar came under pressure due to liquidity infusion as well as concerns over the election results of Georgia.

Gold

As the Dollar was pressured due to concerns over Georgia’s election results, the yellow metal became cheaper for other currency holders. On Monday, Spot Gold prices gained over 2 percent to close at $1,942.3 per ounce. The gains were largely because Gold is considered a hedge against currency debasement, market uncertainty, and inflation.

The global economic scenario was also shadowed by the mounting worries over the new virus strain. The UK, where the virus was originally detected, is amongst the countries that have imposed fresh lockdown with similar development expected across Japan and South Africa.

Any revival in the U.S. Dollar might affect the gold prices. However, the prices are expected to surge due to the new virus strain.

Crude Oil

On Monday, WTI Crude prices closed at $47.6 per barrel, ending lower by 1.9 percent. It was despite a weak dollar as falling U.S. equities and bleak demand prospects diminished the demand for oil. A wave of new lockdowns is expected across multiple markets with the U.K. already implementing full lockdown. It has dampened the demand for crude and pushed the prices downwards.

An impasse was reported in OPEC+, which includes OPEC and allies including Russia, around increasing the output in February. Doubts have prevailed due to worries around renewed restrictions. However, crude received support from decreased U.S. stockpiles. It had dipped by 4.8 million barrels in the week ending 25th December, as per reports from the Energy Information Administration

A bleak demand forecast is expected to weigh on the crude prices in the near-term.

Base Metals

Base metal prices on the LME ended positive on Monday with Nickel being the frontrunner within the pack. Encouraging industrial data coupled with depreciating U.S. Dollar extended some support to the industrial metals. The stimulus push in the U.S. has pressured the Dollar.

The gains in steel were reflected in Nickel prices as it is the primary consuming segment of the base metal. The tighter supply of raw materials and sustained growth in demand for steelmaking ingredients drove the prices for China’s coke futures. Bullish sentiment was also seen amongst its raw materials.

In December 2020, China’s industrial activities grew at a modest pace as rising cost pressure undermined the growth. However, concerns over the widening impact of the pandemic and bleak demand outlook limited the gains for the industrial metal. On Monday, LME Copper closed at $7,860.5 per tonne, marking a dip of about 1.22 percent despite a weak Dollar and steady industrial growth in China supporting its prices.

Revival in the Dollar and escalating concerns over the alarming increase in the infected COVID-19 patients might weigh on industrial metal prices.