Fed rate hike could cap upside in gold: ANZ Research

Daniel Hynes, Senior Commodity Strategist at ANZ Research in an interview to CNBC-TV18 said there is every possibility of Nymex Crude going to USD 30 per barrel because the markets currently are excessively bearish but it is unlikely to sustain at that level over the longer-term Speaking about the rally seen in gold, he said for the time being gold could even see levels of USD 1200 per ounce on back of currency movements in Asia and seems to be a safe haven for commodity investors. However, when Fed hikes rates, it will cap the upside in gold, said Hynes.Below is the transcript of Daniel Hynes's interview with Nigel D'Souza and Reema Tendulkar on CNBC-TV18.Nigel: Where is crude headed according to you, currently Nymex is around USD 39 per barrel and Brent is moving towards USD 44 per barrel. How much lower can we go? A: The market hasn't got the reaction from the producers that it has been expecting. The rally that we saw around Q2 elicited too much of a response from supplier and producers in particular. I think this time around the market is going to have to push things further than they did earlier in the year to get the type of reaction that they need to balance this market. More importantly it will be the time that these levels that will do the job and maybe we might not see the price at USD 30 as such, but certainly at these types of levels, if it stays like this, for several months, that is the type of action that is needed to elicit the response from producers.Reema : I could not quite catch what you said. Do you think USD 30 per barrel is possible on Nymex Crude? Is it likely?A: Absolutely, it is definitely impossible in the environment we are in at the moment. Clearly, the market is excessively bearish and obviously, while I think over the longer-term that level is unsustainable. Instead, the response from suppliers just has not come about and the market is going to have to push things even lower to induce that type of response it needs to rebalance the market. Nigel: Also, what is your view on gold? Last week, we saw a bit of a bounce, 5-6 percent odd. What is it factoring in? Do you think that this is sustainable? Do you think that we can move towards that USD 1,200 per ounce?A: It has had a nice little rally over the past couple of weeks on the back of the currency moves that we are seeing in Asia in particular. But, it has regained a little bit of a safe haven buying as well in recent times, so that is being positive. When you look ahead into 2016, despite when the Fed might move, we are moving towards high interest rates and a stronger US dollar. Ultimately, it will cap the upside of any sort of rally we see in gold for the moment. But, certainly, in the shorter term, for commodity investors, it is probably the best place to be.Reema: Coming back to crude, you said that while USD 30 per barrel is certainly possible, it is not a sustainable level. So, just for the medium-term, what will be the range – a sustainable range for the Nymex as well as Brent Crude according to you, say for the next six months?A: For the next six months --, at the time bottom of this range that we are seeing develop at USD 40-50 per barrel is going have to stay at the bottom-end of that rally for that period to really induce the supplier response we are looking for. So, it may dip temporarily into the USD 30. So, current levels, it is probably required to hang around there for a good 3-5 months.Nigel: Could you give us your view on some base metals – aluminium, copper? We have seen them crack by 20-25 percent in the last one year; do you believe that there is more downside coming over there because we are seeing oversupply coming in from China? The currency as well is not moving very favourably, what is your take on both those two?A: The base metals, obviously have being much more impacted by the renminbi devaluation on the back of concerns that we would see slowdown and inventory financing arbitrage type of trade. But we are actually seeing those things hold up relatively well in recent times, and I think the selling is probably being a little bit overdone. While we have the weakness in the equity markets, in particular in China, commodity markets are a very good proxy for those bearish views out there and as a consequence there is certainly a little bit more downside there. However, it does not have the supply overhang that other markets have and ultimately when things stabilise and you will see a rebound in the base metals and copper in particular more so than in the energy markets.