Interview | Keep buying gold on dips as yellow metal at $2,000 likely by December, oil at $75 seen in 2HCY22, says Sunilkumar Katke of Axis Securities

Crude oil prices are volatile due to reasons like OPEC+ extending output cuts to April 2021 and better-than-expected economic forecast from Federal Reserve backed by vaccine drives. Suez canal blockage also supported the crude prices for a few days, last week. Strengthening dollar also weighed on crude prices recently backed by OPEC+ decision to increase output from May 2021. Increasing COVID cases globally with lockdowns in parts of Europe have also put pressure on prices questioning the demand for next couple of months. Increasing US inventories also pressured prices. We believe Brent crude to trade in the range of $60 in the short term and during the 2nd half of FY22, the prices may again bounce back to the levels of $75 a barrel again with improved demand and economic recovery as the globe will be coming out of 3rd / 4th wave of COVID-19 and more robust vaccination drives.

Q: Gold prices also remained rangebound after falling 20 odd percent from record high levels. What could be the trend in FY22 and why? What are the chances that it could fall below $1,500 an ounce in FY22 or $2,200 an ounce on the upside?

The prices of the yellow metal have given away recent gains as the vaccine drives across the globe swept positive hopes on quicker-than-expected global economic recovery backed by strengthening dollar and US treasury yields. With Fed's comment of the US growth pace better than the last 4 decades, the riskier asset classes have attracted investors attention dampening Gold safe haven appeal. For the year FY22, the prices have bottomed out and may not fall below the $1,600 mark as the COVID risk hasn't disappeared yet. Improvement in physical demand from India and China will support prices in the near term and overall rise in inflation and lower interest rates with loose monetary policy will bring in buying from central banks and ETFs in the 2nd half of the year. We expect the prices of Gold to reach $2,000 by the end of FY22 and recommend a buy on dip strategy.

Q: What does the rising US bond yields and Dollar index mean for the commodities market?

Rise in bond yield and dollar index will put pressure on all dollar denominated commodities be it precious metals, base metals or energy products. Gold and silver will be the quickest to respond with negative trends in the short term. Even riskier asset class like equity will be in pressure as the risk free returns perform better. However, the rise in dollar index and bond yields may not continue its rally as the deficit in the US economy and ultra loose monetary policy of central banks will drive inflation high supporting all commodity prices up in the long term.

Q: What is your so far reading on base metals for FY21 and what could be the trend for FY22?

Base metals have outperformed and have reached multi-year high levels during FY21 backed by weakening dollar and strong manufacturing and economic data from China and US post vaccine news surfaced. The demand is outpacing supply this year as overall output is also low compared to previous years due to mining lockdowns. The US spending on infrastructure and electric vehicle (EV) revolution to support overall base metal prices in FY22 specially the copper and nickel prices.

Q: The rupee has been in a range of 72.50 to 73.50 against the US dollar in FY21. Will the currency remain in the same range in FY22 as well?

With Dollar index strengthening to 14-month high, rupee is under pressure for now. Weakening EUR and GBP is also supporting USD. With crude prices above $60 a barrel, the rupee will remain under pressure and we expect the prices to stay in the range of 73 and 74.5 levels during FY22

Q: What are the key factors to look at in FY22 with respect to all commodities mentioned above?

Key things to look at this year will be:

• COVID-19 scenario : If the cases are in control, backed by the vaccine

• Fed Monetary Policy : If it's going to stay ultra loose to support inflation and price rise

• Bond Yields: If they continue to rise and Fed interest rates to be kept in check for any surprise upside

• Stimulus measures from US and economic activities for FY22

• Crude oil supply prospects

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