Since 2014, every January Comex gold has yielded positive returns. Going by this theory, it's time to go long in the yellow metal
Ravindra Rao
The week has been a holiday-shortened one for commodities as the Christmas holiday was observed around the world. In the last trading week of 2018, precious metals rebounded on the MCX: Gold ended with more than 1.4 percent gains and silver finished the week 3.5 percent higher.
The dollar weakened as investors focused on political turmoil in Washington due to President Donald Trump's call for a partial shutdown of the US government on funding for building a wall on the US-Mexico border. President Trump said he would do "whatever it takes" to get money for his proposed border wall. Democrats and the White House appear far from an agreement on re-opening the government as Democrats get set to take a House majority on January 3.
The SPDR Gold ETF, along with other gold-backed exchange-traded funds, experienced a positive undertone last month. Silver, the underperformer for the year, saw handsome short-covering. Crude oil rebounded from below Rs 3,000 on the MCX as WTI slipped to $42 but jumped back smartly.
Lastly, base metals have had a rough week and a year. In the week gone by, although there were thin volumes, LME aluminium fell to a 20-month low and LME nickel fell to a 14-month low. Overall all five metals slipped on the LME due to a strong dollar, China's weakening economy and the US-China trade war.
The next week is also going to be a holiday-shortened one, at least for international traders as New Year will be celebrated on Tuesday. But gold bulls have finally something to cheer. The dollar has skidded due to the US administration's call for a partial government shutdown, a weak dollar and a rise in investment demand due to increasing political risk in the UK.
Another interesting factor is seasonality. Since 2014, every January Comex gold has yielded positive returns. Going by this theory, it's time to go long in the yellow metal. Similarly, Comex silver has been in a positive trend in four Januarys out of five since 2014. So, we are positive on bullion in January 2019.
On the other side, crude having fallen by nearly 45 percent at one time, we expect with the implementation of output cut from January 2019, prices might form a bottom near Rs 3,000 and rebound.
Meanwhile, the UAE and Russian energy ministers have said they may call an emergency meet if WTI prices fall further. Hence, there is a lower possibility of a further downtick in January. Lastly, base metals are likely to be choppy when a US trade team travels to Beijing the week of January 7 to hold talks with Chinese officials.
The author is Head - Commodity Research & Advisory, Anand Rathi Commodities.
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