The overall Indian commodity market was a mixed bag in 2018. Crude oil took centrestage in 2018 and had a wild year with major ups and downs. All metals were down in double-digit percentages, only gold bucked the trend given its unique position as a distinct investment destination and due to the depreciation of the rupee.
In agri commodities, castor, soybean and dhaniya closed in green. After all the hoopla through the year with crude oil down 18 percent year-on-year (YoY), natural gas closed up 11 percent in the same period.
Fluctuating demand, both physical and speculative, was at the heart of the price movement of all these commodities. Other factors included the strength or the weakness of the US dollar with respect to other major currencies, global interest rates and the weakness or strength of the Indian rupee vis-à-vis the US dollar. Not to forget, trade tensions between the US and China also played a part.
The two most interesting commodities in 2018 were gold and crude oil. Financial interest in gold was kept alive by global geopolitical uncertainty and higher inflation.
It may not be much different in 2019. Equity market movements have not caused panic till now, else gold prices would have gone up even further.
After all, gold is principally a hedge against inflation and a safe haven during times of turbulence in markets. Entering at current prices can give good returns in an uncertain 2019.
Unlike gold, silver did not have a good ride though fundamentals in terms of industrial demand from solar panels and electric vehicles remain strong.
In fact, it fell 1 percent in rupee terms in 2018 despite a slide seen in rupee against the US dollar. The Fed’s hawkish stance too contributed to its price decline.
Low prices make it even less attractive to mine and prices will turn at an opportune moment when the cost-revenue maths starts adding up, and financial investment will flow back in.
The gold-silver ratio (ounces of silver it takes to purchase one ounce of gold) is at an all-time high of around 85. This combined with increased industrial use and financial investment makes a return of 10 percent this year a distinct possibility.
Between silver and gold, choose gold for similar returns but more price stability.
Crude oil was on a roll for the first half of the year until there was a sharp fall. Notwithstanding OPEC’s interests and increasing demand, it is likely that a firm US dollar and increased shale oil production will keep prices in check.
A better play in the energy sector in 2019 could be natural gas. Strong demand and low storage volumes along with increased trade, including from China as well as the demand for clean fuel, make natural gas a contender for the ‘highest returns’ commodity in 2019.
Among key base metals, copper has served as an advance indicator for economic growth and in that sense, it predicts a bleak immediate future – copper prices fell more than 12 percent in rupee terms in 2018.
However, Nickel stands out as the commodity to invest in 2019, even though it fell 10 percent in 2018 due to weak Chinese demand. This year will see increased demand from China as well as from lithium-ion battery manufacturers with a target exceeding 10 percent in 2019.
2019 should see firm commodity prices on the back of higher demand from higher global growth but not by much. Yet its impact on pricing equity and currencies in 2019 will be significant.
But with escalating global tensions, gold should run its own upwards trajectory and shine on its own, whether or not other commodity prices move up.
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