Commodities may decline further as short covering comes to an end
Commodity Online | March 18 2020
UPDATED 17:29:38 IST

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Precious Metals are trading lower today but have been consolidating as short covering supported prices to finally take a breather from the sharp sell-offs we saw of the past few days. Gold futures are trading at $1506.0, down 1.31% whereas Silver is down about half a percent to $12.42 currently. The FED said that it would restart the funding facility popularly called Quantitative Easing (QE) which was used to support the financial system during the financial crisis of 2008 – the pumping of interest free money was largely what drove gold prices higher during this period. Other central banks have also eased monetary policies and issued funds to support the falling markets which have also supported precious metals to steady over the past two sessions. We continue to maintain a bearish view on Gold and expect it to decline to $1450.0 and possibly lower in the short term.

 

Crude Oil and Base Metals continue to face the brunt of falling demand and slowing economic growth despite reports from China suggesting that the virus may finally be on the decline and the economy on its path to recovery though it is too early to tell. WTI Crude Oil has fallen below the 2006 low of $26.05 and is trading at $25.72 on NYMEX currently. Crude Oil will continue to decline further as increasing supply from both US, Russia and OPEC members weigh on prices. It is important to note that in the short term, prices may recovery sharply as lower prices force a lot of producers with higher cost of production to cut off supply which in turn will create a scenario that would support prices. Base Metals will continue to remain weak as stocks across exchange warehouses continue to increase and demand from China declines due the struggling manufacturing and industrial sector. We continue to maintain a bearish view on Base Metals and expect another 5-10% decline in the metals basket in the short term.

 

Sam Nair

AVP Commodities Research



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