Brent crashes to 17-year low in global markets as analysts see free fall

Silver spot delivery at a huge premium: gold:silver ratio at a high of 121, indicating extreme weakness in silver

With global analysts projecting crude oil to touch a low of $20 in the near future, Crude oil futures on the MCX were trading lower today, shedding 12 per cent in the day session to quote at a four-year low of around Rs 1,844 a barrel. In international market Brent fell to $26.37 per barrel, the lowest since September 2003. Gold, silver and even base metals were also trading lower.

US Treasury secretary Mnuchin's statemment that the current crisis is even worse that the one in 2008, and that without US government support employment could fall by 20 per cent, only marred sentiment further and market continued in a free fall. Bullion remained volatile with a downward bias during the day, with the gold-to-silver price ratio at above 121, a lifetime high that indicated extreme weakness in silver. During the past 10 days, gold shed as much as 8 per cent from its all-time high achieved on March 6, while silver price lostt more than 25 per cent.

All selling was in line with sentiments in other markets and the need to release margins/cash to meet losses. In Mumbai's spot market, standard gold closed higher by 1.6 per cent, at Rs 40,375 per 10 grams, while silver ended 1.1 per cent higher at Rs 35,515 per kg. The spot market was higher because it reflects the previous evening's levels.

Interestingly, the spot market in Mumbai faced a huge scarcity of silver physical delivery and traders were offering 5-6 days or even fortnight to make deliveries readily, but were asking for immediate payment. And for ready delivery per kg, the price was at a premium of Rs 1,500-2,000. With the sudden fall in silver price on Monday, there has been a scarcity of physical silver in Mumbai market for the past 2-3 days. Traders holding silver at higher price were also not willing to make deliveries.

Ajay Kedia, Director, Kedia Advisory said, “The bullion market is still under immense pressure of margin calls as erosion continues with selling in global equity markets. The market is eyeing a global recession this year. Investors and traders are running for cash from any asset they can sell. Since volatility in bullion is very high, prices could bounce badly because has been oversold so far. At the very least there is a need for some type of “dead cat bounce”. However, any type of bounce in prices won't hold and we can see gold testing the $1,440 level again. Silver might test $10.80 if it falls below $12.00 decisively.”

Meanwhile, last night some large investment banks downgraded the oil price outlook with Brent falling to $20. London-based Natixis downgraded oil price much lower than its had projected at the beginning of the year. It said, “Oil prices revised sharply lower following Opec’s failure to agree to a production cut at the group’s early March meeting. We now expect Brent to average $46/bbl in 2020.”