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Timely injection of liquidity through stimulus to gradually support base metals

May 26
16:05 2020

Tapan Patel

Commodity prices traded higher with all major commodities in non-agro space ending in green for the week, except gold. The NYMEX WTI crude oil led the rally with gains of more than 12 percent followed by Natural gas, Silver and Nickel. Commodities gained on demand growth prospects with ease in lockdown measures from several countries. The decline in dollar index also supported the rally in commodity prices.,

Bullion prices traded mixed with spot gold prices at COMEX ended down by 0.52 percent at $ 1,734.68 per troy ounce witnessing correction in the second half of the week. Silver prices rallied along with base metals with COMEX spot silver prices rallied by 3 percent outperforming gold prices. Gold prices traded under pressure eyeing support at $ 1,720 after most of the major countries announced to re-open from lockdown which boosted investment sentiment for riskier assets.

The hope for resume of economic activities outweighed the escalating US-China tensions with US listing 33 more companies in the ban list. The growing protest in Hong Kong over New Security Law may keep investors on edge in coming week which may limit down side for Gold. The Gold ETF holdings continued to rise with holdings at SPDR Gold Shares rose to 1116.70 tonnes.

Crude oil prices rallied by more than 12 percent with bulls enjoyed the ride for the fourth week on the trot. The benchmark NYMEX WTI crude oil prices ended at $ 33.25 per barrel for the week while ICE Brent oil gained by 8 percent to $ 35.13.

Natural gas prices rallied by 5 percent joining the buying spree with crude oil on improved demand outlook. Crude oil prices continued upside on demand recovery with reopening of stalled economic activities. The oil output cut effects from major oil producers have supported oil market to balance reducing the glut. The US crude oil and natural gas rigs count has hit all time lows at 318 as many of US energy firms have shut productions which has eased supply pressure at physical delivery point at Cushing, Oklahoma.

Base metals prices traded higher during the last week on positive global cues and improved investment sentiments. Metals prices witnessed buying across board with Nickel and Zinc prices led the gains followed by Lead, Aluminium and Copper. The stable situation in China and ease in lockdown measures in many countries have supported base metals prices to form a temporary bottom.

The Japan has announced to end the nationwide emergency joining the other major economies to restart operations. Copper inventories at China fell to 1,75,825 tonnes to the lowest levels since January 23 as per the data released by SHFE. The escalating tensions between US and China over banning Chinese entities and protest over New Security Law in Hong Kong may weigh on base metals prices in coming week. However, timely injection of liquidity through stimulus packages will gradually support base metals to recover with rise in demand.

The author is Senior Analyst – Commodities at HDFC Securities.

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.

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