Commodities collapse as long liquidation takes hold of prices
Commodity Online | March 17 2020
UPDATED 17:55:16 IST

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Commodities across the board continued the meltdown as concerns of the economic impact of the Coronavirus and sharp crash in global equities forced long liquidation in commodities especially precious metals as investors scramble to cover losses and keep cash instead of assets during the current crisis. Gold prices have lost over 15% over the past five sessions whereas Silver crashed over 30% to trade at $1470.36 and $12.162 respectively. The Federal Reserve in a surprise move slashed interest rates to near 0% this month to support the increasing risks to the US economy but that has not spurred bullions as panic spread across multiple asset classes. The market interprets the Fed’s move as a sign that hard times are ahead for the U.S. economy and the consensus right now is that recession is around the corner due to Coronavirus containment measures. We maintain a bearish view on precious metals – Gold is expected to test $1450.0 support breaking which a sharp downside should take prices to $1400.0 in the near term whereas Silver, which is also below key support at $13.80 could be headed to $10.0 in the near future. On MCX, that would translate into a level of Rs.37000-37500.0 for Gold and Silver could test Rs.30000.0 in the short term.


Base Metals continue to struggle despite reports suggesting that the spread of virus in China may be slowing down. The industrial metals group is trading at its lowest level in almost a year after a fall in demand from the world’s largest consumer hit prices hard over the past few weeks. We continue to maintain a bearish outlook on prices both triggered by demand side issues and the ongoing global meltdown in equities which should keep risky investors on the sidelines. We maintain a strictly bearish view on prices and see a further 5% downside in the metals group.


Crude Oil prices have recovered sharply today with WTI prices trading at $29.42/bbl, up 1.45% whereas Brent oil is down 0.17% to trade at $30.0/bbl currently. On MCX, oil prices are trading slightly higher at Rs.2175.0, up 13 points or 0.60% at the time of writing this. The oil markets are faced with significant supply side headwinds with both OPEC and US increasing their production levels along with Russia which refused to agree to supply cuts and keep output levels steady. Technically, we continue to maintain a bearish bias on prices and expect further downside if prices break below key support at $29.00/bbl whereas on the upside, a break above $33.00/bbl could see prices enter into a short term recovery mode.


Sam Nair
AVP Commodities Research