International Gold price fell by almost 5 per cent in 2018 as investors avoided investments in gold in the past year due to rising equity markets. Indian gold was up almost 8 per cent in 2018 as the Indian Rupee depreciated by 10 per cent in 2018. However, gold looks an attractive asset class in 2019.
The growing economic recovery in the Eurozone led investors to believe that the European Central Bank (ECB) will tighten its monetary policy sooner rather than later. This, in turn, was expected to push the Euro higher against the US dollar and support bullion. Japan’s economy also started to recover. Bank of Japan Governor, Haruhiko Kuroda, also offered a positive view on the economy and inflation.
We see a potential for renewed investment demand in 2019 from India and China as we expect to see lower bond yields and a weaker U.S. dollar in 2019. The Federal Reserve will only be able to raise interest rates once or twice in the next year as the U.S. economy starts to slowdown.
So to sum up, the rising expectations of more hawkish ECB and BoJ and dovish U.S. Fed could likely weigh on the US dollar and support bullion prices.
The Fed has already started unwinding its vast balance sheet and hiked the Federal Funds rate a few times. Although the normalization may not come quickly, investors are quite sensitive to changes in the prospects of the monetary policies in the Eurozone and Japan. Hence, there is room for further declines in the US dollar and support bullion prices. So LBMA spot gold could trade from $1180-$1350 and average at $1250.
Oil prices remained extremely volatile in the 2018 and could continue to do so in 2019. Volatility will be high in the short run; however, prices could stabilize at an average of $55-$65/barrel in 2019 for Brent crude and $45-$55/barrel in 2019 for NYMEX crude.
So, why more upside maybe not be expected for oil in the coming year? For starters, OPEC meeting concluded in December with an output cut of 1.2 million barrels per day (mbpd) and we think it’s at par with the market expectations.
However, prices still remain subdued. So, either the 1.2 million bpd reduction in the production of the OPEC+ group is not deemed sufficient by the market, or there are other bearish factors at work.
What are the bearish forces for oil prices?
Firstly, the weak demand for oil amid concerns over growth stemming from the U.S.-China trade war. If the trade war escalates demand from the largest consumer China could drop and will weigh on prices.
Secondly is the record production of U.S. shale oil and rising output from U.S. The US Energy Information Administration (EIA) raised its 2019 crude oil production forecast by 1.18 mbpd from this year, now expecting the U.S. to average 12.06 mbpd in 2019.
Finally, the political uncertainty over the UK's Brexit in the short term and any other political uncertainties in the near future could also prompt investors remain away from the oil market.
So oversupply and weak demand could keep a lid on prices, but lower prices could force many US shale producers out of business and reduce its competition. This may not be liked by the United States President Trump might who could well face a pushback on this front due to his pledge to support the US oil and gas industry and pursue Energy Dominance. So prices do witness a big fall, some response could be seen by the U.S. to counter falling prices.
The Indian currency has depreciated close to 12 per cent this year and the trend could continue in 2019. In the initial half of the year, the currency could find support from the Reserve Bank of India’s (RBI’s) monetary policy.
Bulls in the Indian rupee market have more reasons to cheer. Receding inflation pressure and a new central bank governor widely seen to have a dovish bent mean the swap markets have started pricing in interest-rate cuts.
Markets are factoring a 50 per cent chance of a reduction around April or June 2019, or 100 per cent chance of a 25-basis-point cut in August 2019.
However, the key risks to the rupee comes from the government turning more populist ahead of the 2019 general elections which could worsen domestic fundamentals and a sharper-than-expected domestic growth slowdown triggering equity outflows from the country.
Currencies of other emerging economies, too, have been sliding, putting more pressure on the Rupee. Other factors like crude and geopolitical concerns could continue to weigh on the domestic unit. So we remain cautious on the Rupee in 2019 and keep our 12-month forecast of 70 against the US Dollar on tighter global financing conditions.
USDINR Spot Monthly chart:
• Technically since mid of 2013 Gold has been moving in a broader range of Rs.32500 and Rs.24450 levels. This indicates that consolidation is ongoing and is a continuation pattern.
• From last 2 years 50 months Exponential moving average is working well and providing support to the up move. As per this EMA, Rs. 29000 looks very important support.
• On monthly chart, MACD has continued to sustain above signal line which suggests trend is in buy mode.
• Internationally, chart of LBMA Gold Spot indicates that prices are in range of $1160.00 and $1375.00 levels. There is formation of positive candlestick patterns from last few months which is going to keep trend on upside. We expect prices to reach in the range of $1375-$1400 level which is positive sign for MCX Gold.
• In short, we expect MCX Gold positive trend to continue in coming year. Close above 32500 will lead prices towards 35000-35500 levels in next 10 to 12 months.
USDINR Spot Monthly chart:
• Indian Rupee has been going through bumpy ride over last few months due to domestic as well as global factors. Let us look at the monthly chart of USDINR to understand the trend.
• The above monthly chart shows that post the rally from 63.24 to 74.47 levels in 9 months, prices reversed on downside towards 69.56 level and post which it is trading in the broader range.
• There is formation of long bearish candlestick pattern which took out the low of prior 2 monthly bullish bars. This reversal has taken place from the monthly channel resistance. This at least suggests that prices can trade in consolidation with downside bias.
• We can expect appreciative trend in Indian Rupee from here on as long as 74.47 levels is intact on upside.
• Over medium term break below 69.00 level will indicate that trend towards 66.00-65.50 can be expected on lower side.
• On the other side, any close above 74.47 will open up upside towards 76.00 levels.
(Disclaimer: The author is the Head of Reliance Commodities. Views expressed are his own)