Chinese Realty Initiatives Set to Boost Base Metals, Gold Surges on Weaker Dollar

In the world of commodities, base metals showed positive gains this week, thanks to a combination of factors such as a softer US dollar and surprising growth in China's Caixin manufacturing PMI. The optimism surrounding base metals was fueled by an unexpected acceleration in China's factory activity, even though official numbers indicated a contraction. Meanwhile, gold prices experienced a notable increase due to a weakening US dollar and concerns over the impact of the US debt ceiling deal on economic growth. Let's take a closer look at the market dynamics and key developments that shaped the performance of various commodities this week.

Base Metals Benefit from Chinese Manufacturing Growth:

Despite the mixed signals from China's manufacturing sector, base metals managed to hold onto their gains. The expansion in China's Caixin manufacturing PMI, a private gauge of factory activity, was an unexpected positive surprise. This unexpected growth raised concerns about the uneven recovery but provided support for base metals. For instance, MCX Copper showed signs of a potential bounce-back rally, supported by technical indicators like a trend line break, price movement above the 60-period MA, and a bullish momentum oscillator.

Gold Shines Amid Dollar Weakness:

Gold prices experienced a significant boost this week, registering a 1.7 percent increase, the highest since early April. This surge was primarily driven by a decline in the value of the US dollar and benchmark treasury yields. Investors closely monitored a range of factors, including recent US economic data, mixed comments from Federal Reserve officials, and the progress of the debt ceiling deal. Although the deal was expected, there were concerns about its impact on US growth and the potential risk of a recession due to limited government spending. The rise in gold prices also had a positive spillover effect on silver and other industrial metals.

Caution Surrounds Crude Oil ahead of OPEC+ Meeting:

Crude oil prices experienced a 2 percent decline this week as investors exercised caution ahead of the OPEC+ meeting in Vienna. Market participants anticipated that the group would maintain the current output levels. However, the decline in oil prices was mitigated to some extent by positive developments related to the US debt deal and optimistic demand prospects during the peak summer driving season.

Technical Indicators and Outlook:

From a technical perspective, NYMEX Crude displayed a bullish engulfing pattern, indicating a potential upward movement following a strong upward surge on Thursday. A daily close above $71.07 per barrel could confirm the pattern and set the stage for a potential target of $74 per barrel as the next resistance level. On the other hand, a close below $67.03 per barrel would negate the pattern. In the case of MCX Copper, indicators such as a trend line break, price movement above the 60-period MA, and a bullish momentum oscillator suggest the possibility of a bounce-back rally.

Upcoming Factors and Rate Hike Expectations:

Market participants are eagerly awaiting the release of the US non-farm payrolls (NFP) data, as it could have implications for the likelihood of a rate hike. However, the chances of a rate hike in June remain low, as several Federal Reserve policymakers have hinted at a potential pause, while also cautioning that it may not mark the end of the tightening cycle. This leaves room for a possible tightening in July. In addition, reports of additional measures from China to support the property market may provide some support for base metals, while the outcome of the OPEC+ meeting on June 4 will be closely watched by oil market participants.

Conclusion:

Base metals witnessed positive gains this week, buoyed by a softer US dollar and surprising growth in China's Caixin manufacturing PMI. Gold prices surged due to a weakening dollar and concerns over the impact of the US debt ceiling deal. Crude oil prices declined as investors exercised caution ahead of the OPEC+ meeting. Technical indicators suggest potential movements in the commodities' markets. Furthermore, upcoming factors such as the US NFP data and the outcome of the OPEC+ meeting will shape the market sentiment in the coming weeks.

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