Apart from OPEC production, crude oil demand is likely to face a challenge from rising coronavirus cases across the globe, and the chances of a second wave of the pandemic could be disastrous for oil demand. For the short-term, it may settle in the range of $ 40-$ 50 a barrel, Abhishek Bansal, Founder Chairman at Abans Group said in an interview to Moneycontrol’s Sunil Shankar Matkar.
Q: Gold finally hit fresh high, rising in double-digit year-to-date. Do you think liquidity is the only reason behind the rally in yellow metal or it is pointing towards serious risk which is yet to be seen?
Gold prices rallied to record lifetime highs this week. The prices have rallied on the Comex by 35 percent and on MCX by 42 percent in 2020 alone. These additional gains in India can be attributed towards the depreciation of the Rupee against the US Dollar. Gold prices have rallied because of the following four important points – (1) High level of uncertainty across the globe, because of COVID-19 pandemic; (2) Liquidity being injected by central banks; (3) Weakness in the Dollar index; and (4) US-China tensions.
The possibility of a second wave of coronavirus cases across the globe, and new levels of lockdowns in major economies, are the risks which are yet to be seen. Invention, production, and the supply of an effective coronavirus vaccine can reduce these negative possibilities.
Q: Is it the right time to invest in gold? What are those options for investment in gold? What should be the proportion of gold in a portfolio?
Gold prices are trading near the all-time highs, both on the Comex and the MCX. It would be wise to invest in gold on corrective dips. Those, who are buying, should keep a reasonable stop loss. There are many options available for gold investments – some of the popular ways are – (1) Jewellery, coins and bars, (2) Gold ETF’s, (3) Sovereign Gold Bonds (SGBs), and (4) Gold Mutual Funds. All of these 4 options are available online these days, due to the COVID-19 pandemic. Jewellers are adopting new methods, and accepting orders on their websites. One can also purchase a gold coin, bar, or jewellery on E-commerce websites, such as Amazon India, Paytm, Flipkart, Snapdeal, etc. At present levels, if we compare Gold with any other asset class, it is a great long-term investment choice. We should always invest at least 10 percent-15 percent of our portfolio in gold.
Q: Silver also traded in line with yellow metal, but few experts feel silver may overtake gold. Do you feel so, and why?
Silver followed gold, which rallied to an all-time high, supported by weakness in the US Dollar against major currencies; silver prices have rallied almost 59 percent on the Comex and 63 percent on the MCX in 2020 alone. Silver is a precious metal, and also has an industrial component. It is used in medical applications, as well as in electronic components for 5G telecommunication networks. Silver supply concerns caused by the pandemic was a major reason why silver rallied.
One indicator of silver outperforming gold has been the fact that gold silver ratio which was trading near it’s at all-time highs of 126 in March 2020 is currently trading at 73, this is a significant drop in the ratio considering it currently is trading near a three-year low.
Q: What is Gold-Silver ratio and what does it generally indicate (on upside/downside fronts). Why this ratio is having so much importance?
The Gold/Silver ratio is simply the amount of silver it takes to purchase one ounce of gold. For example, the current ratio for International Spot Gold to Silver is 73 to 1, which means, that at the current price, you could use 73 ounces of silver, to buy one ounce of gold. When this ratio narrows (from 73 to 65), it means that silver’s relative value is up, and in case it widens (73 to 85), it indicates that gold’s relative value is up. The Gold-to-Silver ratio is a powerful trading signal, which can help to identify buying or selling opportunities in the precious metals sector.
Q: Crude oil prices seem to be gradually moving upwards with intermittent consolidation. Do you think Brent crude futures formed the base around $ 40 a barrel now and are inching towards $ 50 a barrel?
Brent Oil prices are holding in a range of $ 39-46 from the last 6 weeks, after a major rally from the April lows. Prices have rebounded in July, mainly because of the ease in restrictions from the COVID-19 lockdown in certain countries. Oil demand improved, as manufacturing activity is gradually increasing in the US, Japan, Germany, and China which is reflecting in their PMI numbers.
On the supply-side, OPEC+ nations have decided to lower their production cuts to 7.7 million barrels per day, from 9.7 million barrels per day. It will ease supply, and it may keep a lid on rising oil prices in the near term. Apart from OPEC production, crude oil demand is likely to face a challenge from rising coronavirus cases across the globe, and the chances of a second wave of the pandemic could be disastrous for oil demand. For the short-term, it may settle in a range of $ 40-$ 50.
Q: Base metals also witnessed buying interest with the re-opening of economic activities globally. What are your thoughts and what should be your strategy?
Base metals have witnessed buying interest, and prices have rallied significantly from the March 2020 lows. LME Copper prices rallied nearly 47 percent, LME Nickel rallied nearly 34 percent, LME Lead is up by 22 percent, LME Zinc is up by 35 percent, and LME Aluminium is up by 22 percent from the March 2020 lows. The rally in metal prices was mainly due to an increase in physical demand from the largest consumer, China. Copper, Aluminium, and Zinc warrant inventory on SHFE dropped nearly 71 percent, 61 percent, and 65 percent respectively, from April 1 to August 6, 2020.
A drop in inventory is indicating strong physical demand, due to an increase in manufacturing activity, PMI data across China, US, Japan, and Germany are a testament to increased demand. In a recent release for the July month, the Caixin manufacturing Purchasing Managers’ Index (PMI) for China came in at 52.8 for July, against 51.2 in June. The Flash Manufacturing Purchasing Managers’ Index (PMI) in Japan rose to a seasonally adjusted 45.2 in July, from 40.1 in June. The US ISM Manufacturing PMI improved to 54.2 in July, vs. 52.6 in June. Germany’s manufacturing sector also stabilized in July, avoiding a contraction for the first time in 19 months.
We expect the prices of base metals to consolidate, as talks of a second wave of coronavirus across the globe may keep a lid on a further price rally. Any price correction from the current level could be used as a buying opportunity.
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