Brent surges 9.6% in a week on demand recovery hopes, base metals shine

Huge stimulus provided by economies across the globe is likely to put more money in consumer's hands, due to which gold and silver prices may spurt further

Commodity prices jumped by 1-3 per cent during the past one week on renewed hope of recovery in demand, with the huge economic stimulus seen supporting the recommencement of global infrastructure activity. The likely rebound will have its roots in the gradual opening of economies worldwide after almost three months of lockdown.

While aluminium prices on the benchmark London Metal Exchange (LME) rose 2.8 per cent to trade at $1,473 a tonne on Friday, copper was up 1.5 per cent to $5,242.5 a tonne. Brent crude shot up by 9.6 per cent in a week to $34.5 a barrel, iron ore and natural gas posted weekly gains of 5.7 per cent and 5.2 per cent, to $91.4 a tonne and $1.7 per mmbtu, respectively.

With global economies providing huge stimulus to bring business back on track, the average consumer is expected to get surplus disposable income into his hands. As a result, gold and silver may see further surge in prices going forward, till markets adjust global economic stimulus and normalcy gets restored.

“Commodity prices jumped marginally during the past one week on hopes of an increase in consumption in the coming months, due to the opening up of global economies after months of lockdown. Demand for industrial commodities is expected to revive when stimulus packages announced by global economies start coming into the system,” said Navneet Damani, Vice President, Motilal Oswal Financial Services Ltd.

Prices of industrial commodities and energy products had declined sharply due to demand destruction since the coronavirus pandemic came to the fore in December 2019. As the pandemic gradually began engulfing the entire world, infecting over 5 million people and killing thousands, many countries announced months of lockdown, bringing their economic activities to a grinding halt.

During this lockdown period, while mining, processing, smelting, trading, transportation were hit badly, there was large-scale destruction of demand for industrial commodities as well. As the fixed expenditure of major companies continued, thousands of small and medium enterprises went bust. Large companies also reported a sharp decline in business activity with a massive slump in their top and bottom lines.

 

“Dollar weakness was another factor that supported firmness in industrial commodities. For crude oil, storage problems receded with a sudden increase in demand following the opening up of global economies,” said Naveen Mathur, Associate Director, Anand Rathi Shares and Stockbrokers Ltd.

But the ongoing trade war between the United States and China has intensified over the past few weeks, with the US Senate passing a bill to delist over 800 Chinese companies from the US stock exchanges. Markets are now awaiting a Chinese counterattack.

“The surge in the prices of industrial commodities is temporary. Since the trade war between the two large global economies is likely to escalate, non-ferrous and ferrous metals and related raw materials are likely to remain subdued,” said Mathur.

 

Meanwhile, intensifying geopolitical tensions and a worsening global economy that has leaned heavily on stimulus packages to prevent defaults is likely to see gold and silver shine further, said Damani.

While silver added as much as 3.6 per cent to trade at $17.2 an oz, gold shed a marginal 0.5 per cent to close the week at $1,734.7 in spot London trade. Gold in Mumbai’s popular Zaveri Bazaar closed on Friday at Rs 46,911 per 10 grams, while silver ended the week at Rs 47,011 a kg.