Precious Metals have steadied over the past two days with prices in domestic markets remaining volatile but settling into a broad range. Gold futures are trading at Rs.39680.0, down 0.12% whereas Silver is higher by nearly a percent at Rs.34205.0. The decline in bullions has been triggered by a stock market meltdown which forced long liquidation in other asset classes to cover losses and keep cash instead of precious metals. A stronger dollar and lower inflation expectations are also eroding bullion’s appeal. Broader markets are also getting whipsawed, with the CBOE Volatility Index near a 30-year high.
Technically, we continue to maintain a bearish bias and see prices trading into a range on MCX with key support levels coming into play at Rs.38700.0 breaking which we expect Gold to test Rs.38000.0-Rs.37500.0 in the short term. Silver is also trading with a bearish bias and we see it decline to 2016 lows at Rs.32000.0 in the near term.
Base Metals prices crashed further today as the economic impact of the demand fallout took pace forcing miners to take a beating and liquidate long positions across the exchanges. The decline in the copper price accelerated as pandemic fears grip global markets and mining companies announce a raft of production halts and project construction suspensions. Copper on LME crashed nearly 8% to a test a low of $4371.0/ton and has recovered since then to $4666.25/ton, still down nearly two percent. The rest of the base metals group also crashed to multi-year lows and are trading over a percent lower today. The sharp decline in base metals over the past few weeks has forced a lot of miners to slow down or completely halt production facilities in a bid to prevent health issues. The Escondida mine in Chile, the worlds largest with 1.2 mln tonnes output per year may halt operations as the situation worsens which could effectively reduce a massive amount of global supply.
It is important to note that while demand has been struggling and will continue to do so as the outbreak unfolds and global economies struggle – a fall in available supply could set the stage for a rebound in prices as demand eventually pickups. We also note that the outbreak in China is in the process of being contained and that may also aid the physical demand in the short term. Overall, we continue to maintain a cautiously bearish bias on base metals as a whole and look for further developments to take positions.
Crude Oil prices are trading steady at Rs.1713.0, up 94.0 or 5.81% on the back of short covering in the Asian session. The fundamentals continue to deteriorate on the back of slowing global economic growth and inaction from the OPEC+ group. NYMEX Crude Oil fell to a low of $20.54/bbl, a level last seen in 2002 with prices erasing over 60% of its value in the last 10 trading sessions. While, the market continues to remain oversupplied in the short term, prolonged period of lower prices could push a significant amount of oil supply to go offline which could eventually help form a bottom in prices. The short term view continues to remain bearish and we expect prices to decline further to $18.0-$17.0/bbl in the short term.
AVP Commodities Research