After beginning Calendar 2021 with a bang, the commodity market seems to have taken a breather after a decent rally.

Gold and silver prices have eased 9-15 per cent from last year’s peaks on signs of economic recovery amid the Covid-19 vaccination drives, and moved in the ranges of $1,678-1,954 and $24-29 per ounce, respectively.

Crude oil has cooled off after surging to test the $70 a barrel level amid optimism for demand pickup and supply controls by top producers.

Analysts say while the precious metals may continue to move sideways in the near term, other pockets, such as agri-commodities, industrial metals and energy, seem to be offering upside potentials.

Metals

“The outlook for industrial metals, crude oil and most agricultural commodities remains positive as long as the Chinese economy continues to grow and global economic recovery continues to gain momentum,” said Ravindra Rao, VP-Head Commodity Research at Kotak Securities.

The global recovery may find feet this year with progress on the vaccination front, and the Chinese economy, which is leading the way, may underpin growth-linked commodities such as industrial metals and crude oil.

“Commodities like gold and silver may remain choppy, as market players try to ascertain when the stimulus measures may be withdrawn,” he said.

Analysts say expectations of higher infrastructure spending in the US on the back of the record $1.9 trillion stimulus are likely to support demand outlook for industrial metals.

Kishore Narne, Head of Currency and Commodities at Motilal Oswal Financial Services, sees more upside in select base metals following the phenomenal rally to the tune of 35-60 per cent from March 2020 lows.

His top bets are copper and nickel based on factors such as lower inventories, enhanced electric vehicle usage and higher infrastructure spending.

Technical Forecast

  • Copper: The metal could scale new life-time highs above $10,500/tonne (Rs 750-760 per kg); CMP around $8,800/tonne (Rs 650 per kg)
  • Nickel: It could be the next best bet among metals; could cross $20,000 towards $22,000 per tonne (Rs 1,550 per kg) over the next 12 months; CMP $16,220/tonne (Rs 1,200/kg)

Analysts say the yellow metal has largely discounted much of the inflation, and it remains to be seen how fast it flares up. This is what is going to determine price movement in bullion.

Narne recommends accumulating precious metals for a 20-25 per cent upside over the next 12-19 months.

“Gold could be targeting towards $2,000 by the end of 2021 and may eventually head towards a new lifetime high of $2,250, while on the domestic front, the potential upside could be up to the Rs 50,500 mark followed by Rs 56,500,” said Narne, who also expects industrial metals to lead the rally in 2021. He is also positive on energy on the prospects of resumption of international travel.

Agri-commodities

Expectations of a normal monsoon and its resultant impact on farm produce, which can keep agricultural commodity prices in check, may create a window of opportunities for investors, say analysts.

“A normal monsoon may result in higher production of agriculture commodities and help cool off the prices, which are ruling at multi-year highs,” said Rao of Kotak Securities. He is positive on agri-commodities, as demand from China remains firm, but said weather may remain a key factor, both domestically and globally.

The country will probably see a close-to-normal monsoon in the absence of El Nino or La Nina weather patterns during the wet season, said AccuWeather Inc.

The monsoon season, which typically runs from June to September, is considered normal when total rainfall is 96-104 per cent of the long-term average, the weather forecaster said.

Weather office India Meteorological Department is expected to release its monsoon forecast later this month.

In case of a normal monsoon, investors can look at oil seeds like soybean, rapeseed, mustard, peanut, sunflower, cottonseed and copra, as edible oil prices are expected to remain firm in FY22, said Kshitij Purohit, Product Manager, Currency and Commodities, CapitalVia Global Research.

Here are his top technical bets:

  • Castor seed futures: The price is making a wedge bullish pattern on the daily chart. A breakout above the resistance level of Rs 4,848 will confirm a bullish momentum towards Rs 5,935.
  • Chana gram futures: The price has moved in a rising channel pattern since 2018 with some corrections. The overall trend in the commodity tends to be bullish and a breakout above the resistance of Rs 5,850 will indicate a rally towards Rs 6,445.
  • NCDEX Agri index: Since its inception, in May 2020, the gauge has been in a strong uptrend. A minor correction towards 1,230-1,210 levels could serve as a buying opportunity for investors in the coming months.

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