The global economy has entered into an uncharted territory given the headwinds for the commodity sector as an asset class. This is mainly on account of the slowdown in China and the ongoing trade wars between the US and China.
The latter has dented the outlook on industrial commodities. As far as energies are concerned, the oil markets are oversupplied. It needs more than 1.2 mbpd production cut to absorb the glut.
The Chinese PMI data for November confirmed the rapid slowdown in the manufacturing sector. The official Purchasing Managers Index (PMI) data released by the National Bureau of Statistics of China (NBS) indicates it is at its weakest since the August 2015 devaluation.
Therefore, we are not expecting to clock in big gains in industrial metals and energy despite supply-side shortages in many commodities. But, the demand growth for many commodities is likely to weaken due to the ongoing slowdown in China and the US.
GDP growth rate is likely to slow down in the year 2019 and not likely to touch the peak of 2018. We do not expect Brent crude oil to trade above $70/barrel and are of the view that among metals Nickel looks promising.
The year 2019 belongs to bullions. Bullions have witnessed a very sluggish year with prices of gold and silver remaining constant due to weak jewellery demand from India and China, robust growth in the US and the Federal Reserve raising rates and maintaining a hawkish stance.
However, no one knows what is likely to happen in 2019 as the Federal Reserve may change its tone to mildly dovish as growth slows in the US, which can lead to a correction in the dollar index.
The US Fed is reducing its balance sheet by $40 billion per month since May 2018, which is causing massive volatility. Also, interest rates have moved up and are likely to rise further.
Thus, if anything goes wrong, gold will shoot up sharply as it has lived up to its status of being a safe haven instrument. We expect investment demand to surge next year by 10-15 percent, and the central bank buying will be higher as compared to the year 2018.
Gold is one of the best insurance for wealth managers from now on because the downside is limited from here and there can be a huge upside if the global economy slows down sharply.
We are expecting gold prices to test $1,400-$1,450/ounce and $17-18/troy ounce for silver.
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Source: Moneycontrol
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