Considering the sluggish demand and inventories build-up, we expect the production cuts may get extended beyond July to keep the prices around $45 to $50 mark.
We expect oil prices to get capped around $45-48 per barrel as OPEC and allies agreed to extend cuts through July 2020, and on hopes of recovery in demand as economies open up, Sunilkumar Katke, Head – Commodities and Currency at Axis Securities said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: Gold is rangebound above $1,700 per troy ounce in June so far. Is there any possibility of yellow metal crossing its record high anytime soon, why?
Yes, with the current circumstances the price of Gold is expected to cross record high levels in 3 to 4 months’ time. The lower bond yields and interest rates backed by safe haven demand on account of COVID-19 and its impact on global economy will remain the key driver of prices. Central banks purchases have gone up, retail participation through ETF's are on a record high level indicating towards the momentum build-up for a new high soon.
Q: Oil prices doubled in last one-and-half-month amid optimism over re-opening of economies globally. Do you think the Brent crude futures can cross $50 a barrel levels in coming weeks, why?
I don't think with the current levels of crude inventories of the US and sluggish demand with COVID-19 second wave around the corner, the prices may cross $50 a barrel. We expect the prices may get capped around $45 to $48 mark per barrel as OPEC and allies agreed to extend cuts through July 2020, and on hopes of recovery in demand from China and other economies opening up, their operations close to pre-COVID era.
Q: Do you think base metals can rally faster in coming months as gradually economies started re-opening again which raised hopes that demand can come back, though virus risk remains?
The base metals have already rallied to decent levels from its recent bottoms, backed by improving manufacturing activities driven by opening up of economies and stimulus packages on offer to revive economy. We expect the prices of base metals to remain around current levels till the time the concerns with COVID-19 second wave are discounted. However, we don't expect a steep fall in base metal prices considering the gradual improvement in economic data from the US and China, world's two largest economies.
Q: Do you expect further extension to oil production cuts beyond July from OPEC+, why?
Considering the sluggish demand and inventories build-up, we expect the production cuts may get extended beyond July to keep the prices around $45 to $50 mark till the time the demand picks up to exhaust the inventories opening space for withdrawal of production cuts.
Q: What are key triggers (positive as well as negative) to watch out for in the coming week, in case of base metals, precious metals and energy segments?
In case of precious metals, rapid increase in COVID-19 cases and threat of second wave, lower interest rates and demand from ETF, and stimulus packages devaluing currency may act as a positive trigger. Investor confidence on riskier assets to support rallying equity markets; vaccine to tackle COVID-19 spread, and opening up of economic activities strengthening USD may cap the prices.
Base metals: Stimulus packages by central banks to support economy, opening up of manufacturing sector and positive industrial data and a quick fix vaccine and disruption in supply of base metals due to COVID situation may drive the prices up. However, COVID-19 second wave may again push countries towards lockdown; the forecast from central banks on the economic damage going forward and lack of demand from infra, automobile and smart gadget sectors may keep the demand concerns intact.
Energy: Positives are extension in production cuts by OPEC+ nations; and revival in demand due to opening up of economies across globe. Negatives are huge inventory build up at US due to sluggish demand; COVID-19 second wave hampering demand forecasts and the extent to which the countries will extend the production cut.
Q6: Generally if one (new person) wants to trade in gold futures, then how should he/she go about, what are factors to keep in mind etc?
As a new person, one should understand the advantages and disadvantages of a leveraged product, like a derivative contract where the client will be buying or selling Gold worth 10 times the amount invested and hence the risk and return increases 10 folds. So as a beginner, one needs to maintain a buffer margin as a back up to take care of mark-to-market requirements and trade with stop losses to avoid getting stuck against the trend.
It is always advisable to take a note of fundamentals in gold and decide the time horizon backed by pre-defined risk and reward numbers. This will avoid any unknown circumstances and ensure that the client is never out of pocket, and makes the most of the platform available to one's advantage. Also ensure the risk reward ratio is atleast 1:2 for a favorable outcome and participate with a recognised member using the research recommendations as an initial guiding tool.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.