Mixed signals for commodities prices as investors weigh bets between levers of COVID-19 and economic stimulus packages

(Mr. Prathamesh Mallya, Chief Analyst Non Agri Commodities and Currencies, Angel Broking Ltd.)

Even as world leaders come together to fight the COVID-19 pandemic by announcing stimulus packages for economic revival, the fear of a long-term economic recession looms large on the commodities markets. Investors are walking a tight rope by balancing out their investment strategies in commodities.

Gold

Gold prices remained flat last week as the investors booked profits after prices rose to a multiyear high amid appreciating U.S. Dollar. US President Donald Trump has announced plans for the reopening of the economy after a month long lockdown boosting the markets sentiments, denting investors’ confidence in the safe haven demand of Gold. But at the same time, Gold prices are finding support from the fact that so far the COVID-19 Pandemic has infected more than 2.1 million people, killing 1,47,512. Investors are not willing to leave Gold assets in the hope of a quick revival of economic activity across the world. The IMF (International Monetary Fund) has already stated that the world economy might contract by 3 percent in 2020 as the halt in economic activities around the globe might lead to the steepest plunge since the Great Depression of the 1930’s.

Silver

Spot silver prices ended lower by 2 percent to close at $15.1 per ounce, last week, whereas prices on the MCX ended higher by 0.51 percent to close at Rs.44,255 per kg.

Crude Oil

WTI Crude oil prices plunged over 7 percent last week as the Coronavirus outbreak destructed the demand for Crude Oil and raised recession worries which further clouded the demand outlook for Crude and pushed the prices lower. As a result, OPEC and its allies decided to trim their production by 19.5 million barrels per day over a period of time. This move came after Oil prices plunged to its 18 month low in March 2020. Oil prices crashed as the lockdown announced by multiple nations led to a halt in the industrial activities in turn hampering the demand for Oil. As per reports from the U.S. Energy Information Administration, U.S. Crude stockpiles surged by 19 million barrels as refineries cut capacity after witnessing plummeting demand. Slowdown in the production activities by OPEC+ and U.S. limited the downfall in prices.

Base Metals

Last week, Base Metal prices on the London Metal Exchange ended positive except for Lead which dipped over 1.1 percent. Robust stimulus measures rolled out by major central banks amid expectations of demand recovery in major metal consumer, China, supported the industrial metal prices. However, weaker international demand amid widening impact of the pandemic on the global economy weighed on the base metal prices. The COVID-19 outbreak has stoked recession fears which weighed on the base metal prices. Moreover, industrial activities will be slow to resume to their operations after the lockdown which might continue to weigh on the base metal prices in the near future.

Copper

Copper prices on LME ended higher by 0.8 percent last week amid expectation of demand recovery in China. China is the biggest copper consumer in the world and it has reopened its economy after months of lockdown. Copper inventory levels on the LME verified warehouse has almost doubled since the inception of 2020 which signals towards an evident fall in demand for the leader metal and limited the uptrend for Copper.