)
The investment bank observes that its commodities team has turned increasingly bearish on gold in recent months, and the forecast for oil is also lackluster. As per their in-house forecast, gold would trade about 25-45% below its cyclical peak (it reached $1900 in September 2011) in the coming years, while crude oil has another $5-10/ barrel of correction ahead. The gold call is cyclical, primarily based around the likely strengthening of the Dollar and scaling back of Quantitative Easing (QE), but the oil call is more structural, given major supply side developments in extraction and refining.
In the backdrop there are a few economies in the world only that would be as positively impacted by these developments as India observes the Research team of Deutsche Bank. The spend of the country in gold and oil imports has been in excess of India of 11% of GDP annually and hence the bearish price outlook for these two items hold profound implications for India's balance of payments, inflation, monetary policy, interest rate, foreign exchange rate, fiscal position, and consumption and savings outlook.
These developments are taking place at a time when local investor sentiment in India is exceptionally poor. But even without having any illusions about the state of the recovery ahead, the bank’s research team observes that giving up on India is a mistake; between the pull from an improving world economy, a benign commodity price outlook, easing domestic inflation, and a likely surge in plan spending, India can still chart a path of recovery in 2013, however soft it may be, in their view. Of these factors, the commodity price relief may be the most significant positive factor for India this year. Hence declining Gold and oil prices are bailing out India.
