Demand coming back in commodities; like precious metals: Saxo Bk

The commodity market has bottomed out and demand is now coming back into the space, says Ole Hansen, Head of Commodity Strategy at Saxo Bank. A clear rally is visible in energy sector with oil rising to USD 51 a barrel mark. Agriculture sector has also seen significant gains especially in sugar. Hansen says that strong inflow of investor money too is helping commodities currently. However, he cautions that some correction could come in soon. Precious metals too have started to rally now. Hansen is bullish on both gold and silver over a three month perspective. “Investors, both individual and institutional, are coming back into precious metals,” he says. Hansen recommends avoid on oil at current levels. There is likelihood of oil seeing mid-40 levels again, he adds.Below is the transcript of Ole S Hansen’s interview with Manisha Gupta on CNBC-TV18 Q: What is your sense coming in for the agriculture commodities because that really seems to be be playing catch up to everything else? A: We are indeed seeing in general a strong demand for commodities at the moment and it has really been led by the rally in energy. But as you mentioned, the agricultural sector has seen some significant gains recently and the outlook for the weather which has turning less crop friendly in recent months we are seeing a kick off in South America and now, we are also seeing some concerns in the US and Asia has also been marred by droughts and that is really sending some of these key agriculture commodities higher. We have seen a significant surge in sugar. It is up significantly from the lows earlier. Currently heading towards the 20 cents a pound. Again driven by adverse weather in Brazil and the outlook for diminishing crop and a potentially supply deficit coming in this year. So, it is all well and good. We are seeing very strong moves, but at the same time, we are also seeing a very strong inflow of investor money. Sugar especially is increasingly getting crowded so the trade we are seeing a record long being held by hedge funds in futures market and that is obviously raising the risk that the market is running ahead of itself and we can run into some corrections and that is the overall worry in the near-term. If we look at some of the indicators, the relative strength indices (RSI) are showing overboard in most sectors. Energy, agriculture, probably precious metals is the only one that is really which is only just now starting to catch up again. Q: Yes, precious metals is yet another animal because the kind of gains that we have seen in sustainable ones at that because bring any news on the board, on the table, you have seen this sector continue to do well. What is your sense on the gold prices because there is this safe haven buying, investment demand and you have seen many other factors also come in line with other fundamentals? Are you a buyer in gold prices at these current levels? A: I am bullish on gold. We still believe it can head back up towards USD 1,400 this year. Just looking at how the market has been behaving now for the past month and a half, we had acquired a long overdue correction. We did find support where we should find support in order for this to just be a correction. We bounced after USD 1,200 level obviously helped by the change or the weaker job report last Friday in the US. But the overall driver, the reason why we are seeing investors both private and institutional coming back into precious metals this year is the fact that we have got trillions of dollars worth of sovereign debt trading into negative territory. Just today and yesterday, we are seeing the yield on Germany government ten year bunds just a few basis points from heading into negative territory. Some of that is obviously, also risk related to the Brexit vote later this month. So, if we have a stay vote, then we may just in the short-term see a bit of bullish bets being taken off, but the longer term prospects of negative bond yields especially forcing investment managers across the world to look at alternatives and in silver and gold, they found that alternative. I think that investment demand will continue for the foreseeable future.