Commodities stabilize as FED announces unlimited QE
Commodity Online | March 23 2020
UPDATED 18:17:33 IST

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Gold prices are trading at $1495.10/oz, up 0.71% while Silver futures are trading at $12.578/oz, up 1.56% currently. Precious Metals had its worst week in almost four decades driven by mass unwinding of positions and leverage across multiple asset classes in a bid to hold cash due to the current crisis. Amidst all the crisis and market crashes, it is important to note that the FED has once again unleashed QE, this time on an unlimited scale which acts as incredibly bullish for precious metals. The last Quantitative Easing coupled with lower interest rates fueled the rally in precious metals during the financial crisis of 2008 and a repeat of the same would eventually help bullions find a floor and push prices higher. Technically, precious metals may on the path of recovery driven by the recent events and short covering but we believe it may be a while before prices enter into a fully fledged bull market. On MCX, sustained activity above Rs.41000 should push prices higher to Rs.42000.0-Rs.42500.0.

 

Base Metals declined further on Monday with Copper leading the losses at Rs.355.35, down 17.40 or 4.60% followed by Nickel which is also down over three percent at Rs.832.10 today. The sharp losses come as countries enforce complete shutdowns which increased fears of a deepened economic recession in the near term. While China steps into the path of recovery, the global demand erosion along with a massive inventory overhang will keep metals under pressure over the next few months. Technically, LME Copper prices have approached key support zone at $4300.0-$4500.0 and may hold steady at current levels depending on the global situation and possibly form a temporary bottom at current levels whereas on the upside, only a break above $5500.0 would trigger a sustained reversal in prices in the medium term. The rest of the base metals are also likely to remain subdued in the near term.

 

WTI Crude Oil prices are trading at $22.45/bbl, down nearly a percent whereas domestic oil futures are trading at Rs.1772.0, down 166 points or 8.67% currently. Oil prices reaching $15.00/bbl is becoming a distinct possibility as the demand-supply situation worsens with the US shutting down production partially and Saudi Arabia along with OPEC members and Russia show no signs of coming to an agreement regarding the supply cuts. The OPEC+ cartel may have grossly underestimated the economic impact of the pandemic and the decision to scrap the output deal will eventually starting hurting as their economies suffer from falling budgets.

 

In the short term, the lack of decision between OPEC+ and inaction from US shale producers should pressure prices to $18.0-$15.00/bbl but over the medium term, we believe resurging buying driven by countries recovering from the epidemic especially China, which accounts for 18% of global consumption, should help prices find a floor and eventually set it on the path to recovery. On MCX, this translates into a range of Rs.1370-Rs.1150/bbl and the downside should be further limited as the USDINR continues to weaken.

 

Sam Nair

AVP Commodities Research



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