Commodities : Special update

Precious Metals:

Is the valuation game shift in favour of Gold and Silver? Is the demand-supply equilibrium dilutes excessive bearish momentum? These two questions have emerged to set the tone for near-term directional bias. Precious metals did not get the benefit of QE and ZIRP since 2008-2009, while monies chased equity and bonds assets. The combination of investor monies (and leveraged liquidity) chasing equity & fixed income assets (along with USD rally), the investor appetite for precious metals got cut, hence the set-up of bearish undertone. In the process, precious metals also lost the safe-haven advantage despite serious concerns on growth and irritants in geo-political environment. Not taking into account the fall since 2009-2011, the fall since July 2014 itself is excessive; Gold is down from 1345/1255 to 1132 and Silver down from 21.55/17.65 to 15.03. MARKET PULSE strategy was to end the bearish chase of Gold at 1110-1135, allowing near-term consolidation awaiting fresh cues for clarity. What next? It is possible that Gold would get into sideways consolidation mode at 1110/1135-1235/1260 for rest of 2014; focus is back at earlier support zone of 1165-1215, now turned resistance. The strategy (post close of strategic "short" book at 1135) is to reinstate "short" in 2 lots at 1185-1200 and 1245-1260. While NT trend is mixed, short term bearish undertone below 1110-1135 is seen to be intact. Silver has firm NT support at/above 15.00 for consolidation at 15.00-17.65 and stay neutral on break-out direction.

Brent Crude:

MARKET PULSE strategy was to end the bearish chase from $115 at $80-82 with bias thereafter for NT consolidation at 80/82-88/90 till fresh cues emerge to set up firm break-out bias. The value of Brent Crude is seen to be adjusted to fair value taking demand-supply dynamics (demand compression from growth squeeze) and the premium over the cost of production, when Crude importers have shifted to alternate energies. All taken, it is win-win for all stake-holders for NT consolidation at 80/82-88/90 till clarity on FED shift to hawkish monetary policy stance and pick-up in global economic growth. The strategy is to play end-to-end of 81.63-87.94 as break-out either-way is tough to sustain for now.

Over all, given the excessive heat on the global equity market and upward pressure on US Bond yields, investors will find equity and bond assets hot-to-hold (leading to cut in leveraged investments) and shift appetite in favour of cheap-to-acquire commodity assets.

Moses Harding