Commodities recovery set to begin in H2 of 2016

Commodities recovery set to begin in H2 of 2016
Both India and China have been key gold buyers and that adds to demand. India's demand for gold touched 126 tonnes in August.

Gold has demonstrated strength while oil markets has begun to stabilise on rising demand: Saxo Bank



by

Sandhya D'Mello

Published: Sun 11 Oct 2015, 12:00 AM

Last updated: Sun 11 Oct 2015, 8:47 PM

The next six months may prove to be a pivotal turning point in the recovery of global commodities markets, according to Ole Sloth Hansen, head of commodity strategy at Saxo Bank, the online trading and multi-asset investment specialist.
During his visit to Dubai, Hansen outlined his thoughts on several major milestones achieved during 2015.
On the top of Hansen's list were the international launch and rollout of the SaxoTraderGO platform - Saxo Bank's new and intuitive, multi-asset trading platform - as well as the launch of a dedicated Arabic website, a key asset in the bank's drive to encourage and empower retailers and investors across the Middle East.
"The Middle East is very significant for us and it contributes substantially to our global business, with our main focus on gold and oil. We have seen a spurt in our multi-asset trading platform, where we equip the investors with right tools so they can hedge their risk with smart decisions from equity to forex to commodities all in one screen," he said.
Following nine months of geopolitical incidents in Europe and parts of the Middle East, as well as widespread uncertainty catalysed by major economic crises in Greece, Russia and China, Hansen is optimistic the next three months will see a soothing of relentless turbulence across global markets going into 2016.
Speaking from Saxo Bank's office at the Dubai International Financial Centre, Hansen said there is light at the end of a very long tunnel, not least for oil and precious metals.
"Gold has demonstrated its strength in recent weeks and oil markets have begun to stabilise as non-Opec supply drops and demand remains robust as the economic benefits of lower oil prices kick-in across many oil consuming nations."
"Although commodity gains from the Chinese boom years have largely been wiped out, oil, gold and silver have proven their resilience multiple times in the past and will do so again. Rising supply has spawned low prices, but the best cure for low prices are low prices. There is genuine optimism that we'll be sitting here looking at a very different picture for global commodities markets in 12 months' time - the outlook is cautious but positive."
While there are challenges ahead - specifically the impact of the much-anticipated rate hike by the US Federal Reserve - Hansen believes decision by the Federal Open Market Committee, or FOMC, to delay any hike until December will ease volatility in the short term.
"While US activity and employment data remains strong, the developments in commodities, extreme market volatility in late August and the Chinese exchange rate policy distracted has distracted and sufficiently alarmed the Fed. It's sitting on its hands - for now," said Hansen.
"Failing oil prices and deflation are legitimate concerns and the last thing the Fed wants is to tighten its belt and then find it has to loosen it again a few months later. The anxiety means there is room for a marginal commodities recovery this year before uncertainty grows again in the run-up to the FOMC's December meeting."
Hansen, a specialist in all traded futures and with over 20 years' experience both on the buy and sell side, added: "We are seeing markets are stabilising after the uncertainty that spilled over due to the China slowdown due to its own transition. I believe gold could be trading to $1,250 by the end of December. Both India and China have been key buyers and that adds to demand. India's demand for gold touched 126 tonnes in August alone."
"As far as oil is concerned the prices are expected to balance out in first half of 2016. Supplies in United States are falling, refineries in Europe and US will slowdown in the first half and global glut which is assumed to be high as it is perceived it is not. Oil refineries also carry out their usual maintenance works at this time of the year and ahead of the winter months - hence the notable fall in the refinery utilisation rate. The Iranian production will hit the market by the first quarter of 2016 but the situation will see global demand on the other hand surging. Oil prices may look up at the latter part of 2016 and we predict it could touch up to $60 per barrel."
Many investors are starting to believe that US shale oil output is going to be reduced noticeably and are thus betting that prices will recover from these levels as the global glut is slowly reduced.
Investors' growing confidence on the oil market has been given an additional lift by comments from the Opec that oil demand will climb more this year than previously projected (by 1.5 million barrels a day), and as the EIA predicted that global oil companies will cut investments in crude exploration and production by 20 per cent this year.
- sandhya@khaleejtimes.com


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