Gold and silver traded in a range as the markets awaited key data points from the US including the inflation numbers. Last week, top officials in the Federal Reserve reiterated their stance on interest rate cuts, suggesting that they would need more data before they start the rate-slashing exercise. ET Markets spoke to Ravindra Rao, VP-Head of Commodity Research at Kotak Securities to know what key factors will drive the commodity markets this week.

Can you tell us how commodities performed last week?
Ravindra Rao: Last week, we saw volatility due to speculation about the Fed’s rate cut plans. Positive US data and statements from Fed officials dampened expectations. Gold and silver ended negatively. However, silver showed resilience amid a base metals downturn. Overall, I think last week was not that good for precious metals. But in energy prices, crude oil went up mainly because of the geopolitical tensions. So, this is what happened last week with commodities.A new tranche of Sovereign Gold Bonds (SGBs) is open for subscription. How did the last tranche perform, and what returns can investors expect?
Ravindra Rao: The previous tranche matured at around 12.92% returns, proving gold’s importance in a portfolio. It was indeed a very good return because if we look at the equity index for the same period, even the Nifty index gave around 13% return. Generally, it is said that if the equity markets are higher, gold might go down; if gold is higher, equity markets might go down … but that is proving to be a false statement now because both the asset classes have given a similar kind of return. SGBs offer a lot of stability, and with four to five tranches maturing this year, similar returns are expected. Adding gold to your portfolio as a hedge is quite important as the global economy is very uncertain. Current gold prices are favorable, and inflation data will be crucial for potential upsides.

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What global factors will impact commodities this week?
Ravindra Rao: Key factors include US inflation data and PPI data, along with speeches by Fed governors. The headline inflation is expected to come down to 2.9%, which was 3.4% last month, as per the Bloomberg estimates. Core CPI is also expected to come down. So, this would be positive for gold and overall for commodities because the index might move lower, and yield might move lower. On February 16th, we have the PPI (producer price index) data, which could change the entire dynamics of the rate cut scenario in March as well as in May. Lower inflation expectations could be positive for gold and commodities, as it will influence the dollar index.

Looking at gold and silver this week, what levels should investors watch, and how should they trade?
Ravindra Rao: Gold may trade between Rs 62,000 and Rs 62,400. A drop in inflation could push prices to Rs 63,000. Silver looks promising with a bullish pattern; closing above 70,830 could lead to gains. Gold is slightly sideways. However, inflation will be the key. If inflation disappoints again, then we might see prices going down. Otherwise, I think we are set for a good upmove if the inflation drops as expected.

What about other commodities like copper, zinc, cotton, and natural gas?
Ravindra Rao: Base metals, especially copper and zinc, are weak due to concerns about deflation in China. Natural gas might not move higher soon, it lacks upside potential unless there’s a change in the US weather pattern. This week we have the Chinese New Year lunar holidays so I think the market might be muted or it might come down because of the lower participation. But if China comes out with any stimulus package, any strong stimulus package, then we might see a reversal

Watch: Commodity Talk: Gold, Silver Outlook

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