Significant relief for India
The dream run for Oil producers since 2009 has come to an end, unwinding most of the advantage from rally from 36.20 to 128.40 during this period, before consolidation at 100-115. The worst hit period is from June 2014 driving the Brent Crude sharply down from 115.71 to below 58.50 by over 50% in 6 month period. The positive take-away is the loss of traction of Brent Crude value from geo-political tensions (in Russia and Middle East region), thereby shifting demand-supply equilibrium advantage from suppliers to buyers. The equilibrium shift is largely from move to alternate energy products and demand destruction from low global economic growth. The major beneficiary is India bringing resolution to structural woes on high CAD and elevated inflation. This blog urged suppliers for strategic hedge at/above $115 (seen as hot-to-hold valuation) and considered as prudent for importer-buyers for gradual long term hedge at $35-65.
Gold also lost its safe-haven advantage since 2011 to unwind most of the 2010-2011 rally from 1096.25 to 1920.30. In 2014, Gold lost its Q1/2014 rally from 1209.80 to 1391.76 for March - November weakness into 1131.85 before stability at 1160-1240. The advantage for India is from marginal benefit on the CAD and bandwidth to remove the restrictions on Gold imports. This blog urged to chase the bearish set up with end of weakness zone at 1110-1135 for consolidation at 1135/1160-1235/1260.
Will the advantage stay valid through 2015?
The demand-supply supply equilibrium continue to stay in favour of extended bearish undertone; but how far it could go before shifting the dynamics to cost-revenue? The immediate support is at 55.00-56.50, seen as cheap-to-acquire valuation zone for pull-back correction into 65-75. The only major relief for the Brent would be from growth-push higher demand and/or supply-squeeze from Oil producers, who may not see sense in top-line growth at $35-55 price band. The strategy is to stay tuned on Brent Crude at 35/55-65/85 through 2015 with bias for intra-2015 recovery into 65-75/85.
Gold outlook for 2015 is retained at 1110/1135-1235/1260; break-out bias is mixed with overshoot target at either 950 or 1320. Given the optimism on growth recovery in developed economies and resultant risk-on investor appetite, Gold will continue to lose its shine as safe-haven and also as hedge against inflation. The trading mode will stay in sell-on-recovery mode for pass-through of 1131.85 into 950-1000 before price stability at 950-1150.
The bearish consolidation momentum both on the Brent Crude and Gold is relief to RBI and cheer to Indian economy for extended relief on the CAD, inflation and Rupee exchange rate.
Wish you all a great & profitable 2015!
Cheers!
Moses Harding
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