Gold futures are trading at $1645.60/oz, down half a percent whereas Silver is down nearly 2.50% to trade at $14.185/oz. Precious Metals have recovered significantly over the past week driven by massive financial stimulus unleashed by central banks across the globe to tackle the slowdown from coronavirus. The U.S. House of Representatives approved a $2.2 trillion aid package, the largest in history, to help cope with the virus-inflicted economic downturn. Precious Metals tend to benefit from lower interest rates and loose monetary policy as they reduce the opportunity cost of holding non-yielding assets.
The last round of financial easing by global central banks during the downturn of 2008 triggered a multi-year bull run on Gold and Silver which pushed prices to record highs and unless, the stock markets witness another sharp decline, we expect that precious metals may once again start on another decade long bull run. We maintain a slightly bearish view on prices this week and expect Gold to decline to Rs.42000.0 and Silver to test support at Rs.37500.0.
Oil prices continue to decline as demand erosion amid the pandemic spread forced a global shutdown of countries for an extended period. WTI futures are down nearly five percent to $20.44/bbl whereas Brent is trading at $26.48/bbl, down 5.19%. MCX Crude Oil is also trading lower by nearly five percent at Rs.1615.0. The situation remains precarious for oil prices as demand erosion and the lack of decision on output cuts between Saudi Arabia and Russia continue to weigh on markets. Another key factor weighing down prices is that lack of available storage – given the rampant supply from OPEC members and US, oil storage options are running scarce. We continue to maintain a bearish outlook on prices in the short term and expect WTI prices to decline to $18.0/bbl unless SA and Russia come to an agreement regarding production cuts. It is also important to note that a surprise agreement could see a swift and large recovery in oil prices.
Base Metals have recovered from previous lows but continue to remain under pressure as global economies struggle with growth targets and falling manufacturing/industrial activity. With the exception of Lead, all base metals traded on LME are down by over half a percent each. LME Copper is down 0.85% to $4770.0/ton. As the Covid-19 virus spreads rapidly across Europe, the US and in other regions outside of China, the markets are focusing on how long the lock downs will last which would have a strong impact on prices. With China being on the path of recovery, lower prices and production cutbacks may help prices form a bottom and eventually set path for a rally in the near future. In intraday, we are negative on base metals and expect further declines today.
AVP Commodities Research