How economies will hold up in inflationary environment is key concern: Probis Securities’ Jonathan Barratt

Jonathan Barratt believes that gold prices will start recovering when the US dollar begins to turnaround from its 20-year high. (Representative Image)

Base metals have corrected sharply in recent days but Jonathan Barratt, CIO at Probis Securities, thinks the inflationary environment and how economies will perform in it remain a key concern for markets.

“Once the inflation gets out of the bottle, it is very hard to shove it back in,” he said in an interview to CNBC-TV18. In an April interview to the channel, he said that he expected commodities to correct by 10-15 percent.

Also watch: Jonathan Barratt discusses declining base metal prices

India banning wheat exports to control price rise would be a recurring theme but inflation-management would depend on what central banks do, he said.

On base metal correction, Barratt said he expected a 5-10 percent correction across commodities but whether they could correct by 15-20 percent would depend on how the economy would hold up.

He does not see oil going up beyond $112 to $115 a barrel because there would be supply from other areas to compensate for the Russian oil.

Early this month, the European Commission proposed a ban on Russian oil early this month but the EU countries are still trying to negotiate a sanctions package acceptable to all.

Weak economies a worry

Barratt believes the primary concern for investors is weakening economies and not so much the falling commodity prices and that is what is affecting the commodity prices.

Over the last month and a half, on LME, aluminium has fallen 21 percent, copper by 10 percent and zinc by 13 percent. “When the economy starts to waver, people get concerned and therefore, commodity prices come under pressure,” he said.

“There is a change in sentiment,” he said. “Earlier there were concerns around supply and meeting demand, and the Covid-19… now countries are thinking, let’s refocus away from issues surrounding Covid-19 and look at how economies are doing, how interest rates are doing (and so on).”

With interest rates going up and inflationary pressure, the dynamics driving the commodity prices had changed, he said.

Barratt said he was disappointed with the gold forwards market but sees the performance of the US dollar as key to that. The US dollar index is at a 20-year high and the yellow metal has an inverse relation to it.

“Once we get a turnaround in the US dollar from its 20-year high, it (gold) will come back in flavour… that (sentiment towards the metal) will change once we start getting those inflationary pressures, which will come along,” he said.

“Interestingly, while gold continues to be under pressure, silver seems to be holding up okay. The gold-silver ratio certainly weighs in favour of silver.”