Elevated commodity prices have remained in focus across global financial markets for much of 2022. Supply disruptions thanks to the Russia-Ukraine war and to the lockdowns in China have inflated commodity prices, forcing central banks to act more swiftly on COVID-era interest rates and businesses to rush to protect their margins.
However, experts don’t want to call the opportunity missed in commodities. Not yet.
But one has to be prepared for persistent volatility in commodities given the rupee’s recent slump to all-time lows against the US dollar.
“Those who missed the party can take the advantage for making investments in commodities,” Manoj Kumar Jain, Head-Commodity and Currency Research at Prithvi Finmart, told CNBCTV18.com.
Commodities are likely to draw strong interest yet again at least in the short term amid the lingering war in Europe and supply-side challenges, Sugandha Sachdeva, VP-Commodity and Currency Research at Religare Broking, told CNBCTV18.com.
She is betting on the energy segment within commodities, followed by bullion and base metals. “Crude and gold are the two favourite counters for commodity traders in India, which are likely to benefit from the depreciating rupee,” she added.
HOW TO APPROACH COMMODITIES NOW
Commodities have emerged as an asset class for investment during the COVID pandemic, with many of them having delivered returns to the tune of 30-100 percent.
That is the message from Manoj Kumar Jain, Head-Commodity and Currency Research at Prithvi Finmart.
What’s in it for the small investor?
Despite high liquidity, momentum in commodities has turned favourable for retail investors, making bullion an attractive destination for the common man, be it through futures, options (derivatives), index or delivery routes, Kedia Advisory Founder and Director Ajay Kedia told CNBCTV18.com.
The recent wild swings have brought ample liquidity in options as well — something that is generally limited to futures contracts — in instruments such as gold mini, crude, natural gas and cluster bean, he mentioned.
“Even index options are attractive for the common man just like equity benchmarks Nifty50 and Nifty Bank… There’s no need for big lots today, as gold can be entered in eight grams and silver in one kilogram thanks to regulatory changes,” he said.
Jain sees gold and silver as good investment opportunities for long-term investors. He expects global spot prices of the yellow and white metals to bounce back once again broadly due to two key supporting factors:
Heightened geopolitical uncertainty has boosted the safe-haven appeal of the precious metal since Russia’s invasion of Ukraine.
Jain believes gold and silver could deliver returns of 8-12 percent in the next one year, and suggests investors to take the systematic investment (SIP) mode to go long on bullion. He sees support for spot gold at $1,780 per ounce and for spot silver at $22.6 per ounce.
Sachdeva expects the safe-haven appeal of bullion to pick up given the recent correction in equities as well as the dollar index.
How to trade gold and silver
Kedia recommends buying gold futures at Rs 50,000 for a target price of Rs 53,500 with a stop loss at Rs 48,500.
He suggests going long on silver at Rs 60,000 for a target of Rs 66,500 with a stop loss at Rs 56,000 for the next two months.
Sachdeva has a constructive outlook on energy for the near term given the supply tightness, slow increases in the output of the Organization of Petroleum Exporting Countries (OPEC), and the European Union’s ongoing push for sanctions on Russian oil.
“Easing mobility restrictions in China would improve energy demand prospects and boost crude imports. The summer driving season in the US will act as a tailwind for oil demand,” she said.
The reopening of the Chinese economy from COVID-related restrictions may lift buying interest in base metals, though the upside may be limited given a host of global economic challenges, said Religare’s Sachdeva.