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In an interview with ET Now, Kunal Shah , Head of Research, Nirmal Bang Commodities, shares his views on the commodities market. Excerpts:
ET Now: Discussing your strategies copper seems to be the first one. What do you think of it as short that you are suggesting?
Kunal Shah: Well, the fundamental of this metal has been bearish since the last couple of months because of increase in liquidity as we have seen prices moving up abruptly. Going forward we believe that the strength in the dollar and the ongoing problem in Europe is definitely going to weigh on copper prices. The Chinese demand outlook is not rosy. We have seen a sharp drop in imports by China from 5 lakh to almost 415,000 tonnes. So, I am of the view that copper prices are going to go down further.
ET Now: Talking of fundamentals crude oil is your next strategy and in the last 24 hours we have seen significant tension building up especially in the Middle East, Iran in particular, and Straits of Hormuz is also coming under military build up and you are suggesting a buy, what is your strategy here?
Kunal Shah: Well, we are first to give a buy because of the ongoing geopolitical tension. The demand and supply of WTI is not as bullish as the prices are portraying. It is just a built up of geopolitical premium which is pushing prices higher. If you look at $101 with the ongoing supply which is coming from US itself, especially from North Dakota, these prices would not be justified at these levels. So, it is just because of the geopolitical tension we see a spike. The maximum upside is till $102 to $150 on NYMEX but this is short lived. The moment this kind of geopolitical concern eases, I think prices will cool off. So, it is more about geopolitical premium rather than the actual demand and supply premium.
ET Now: We were just speaking to some of the global experts and they were of the opinion that till 104-105 - NYMEX has some scope of appreciation. So, beyond this strategy if somebody is looking at going long on crude oil for next couple of weeks, would you suggest that?
Kunal Shah: If you are betting that there is going to be a geopolitical tension, then yes, you should go long in oil. But if you are not, then use this kind of rallies to go short in oil because I am of the view that if there are no geopolitical tensions, then the crude will be the first one to go down. It is just a matter of call more than the demand supply. I think a defence analyst would be in a better position to take a call on this. But I have a view that 104 should be it. I will not be very bullish post that. We have already seen a premium of $10 built in oil, especially in WTI and I am of the view that we are not going to see any geopolitical tension immediately. So, the moment this kind of concerns eases off that is the time you should go short on oil.
ET Now: Talking of precious metals, you also suggest a sell as far as silver is concerned?
Kunal Shah: Silver has run up from 52 to almost 57 on domestic bourses. Similarly, on international bourses, from $28 to almost $34. We have seen no demand pick up. If the silver imports from China has declined, so we are of the view that this liquidity has driven all asset classes across the globe and the moment dollar starts strengthening, you start to move out off from the riskier asset classes.
Since the last few days we are watching a lot of friction in dollar. Dollar has started to strengthen again because of the ongoing concerns about whether there will be a Greek deal or not and we are of the view that this is not the time you should make a fresh investment in silver. If you are having a profit, then you should exit out of it. Riskier traders can go for a short position in silver with a downside expected for the day or two. 55,800 or from the 15 days point of view 55,000 looks very likely.
ET Now: Would you mirror the same strategy on gold as well?
Kunal Shah: If dollar index is strengthening, you should not buy gold. That has been the most common way to track gold. So we are of the view that 1750 on upside should not be taken off by the markets. You are going to see some downside of about $20 to $25 dollar correction in gold. Despite yesterday's rally because of the spark in geopolitical issues, we are still not optimistic about the outlook for gold. We are expecting some downside to take place. So, from the present levels a correction of Rs 150 looks very likely and on COMEX $1700 looks very likely.
