Trade Recommendation

Current Gold to Silver Ratio is about 84.65. Assuming that Gold Silver Ratio reverts back to average of the 21st century at 60:1, the price parity for Silver w.r.t. Gold would be in the range of $40-45 levels based upon current Gold levels of 2565. With the Silver market widely tipped to experience a fourth straight year of structural market deficits in 2024, many analysts view this renewed strength as just the start of a more bullish environment for silver. According to the Silver Institute’s estimates in the 2024 WSS, the global silver deficit will rise by 17 percent to 215.3 million troy ounces in 2024 due to an expected 2-percent growth in demand again led by robust industrial consumption combined with a 1-percent decline in total supply. The current short-term correction is an opportunity to buy Silver as per above facts. Technically, Silver is currently testing 100 DMA at 30.35. We expect it to consolidate around these levels and move towards 40 levels in the next 6-9 months. Risk to the view is Dollar index going above 110.

We believe that weakening global demand, increasing supply, a stronger dollar, policies of new Trump administration & lack of geopolitical risk triggers can lead to Brent testing 50 levels by June’25. We believe the biggest issue with crude demand globally is China. Between 2000 and 2023, China accounted for 50 percent of the growth in world oil demand, averaging an annual increase of 518,000 barrels per day (bpd). For CY24, this no is now 180,000 bpd, less than 10% of the the growth in world oil demand. There are both cyclical and structural factors, with the latter already starting to weigh on consumption. China’s oil demand is growing more slowly because of rising sales of new energy vehicles (NEVs)—a category that includes battery electric vehicles, plug-in hybrid electric vehicles, and fuel cell electric vehicles—China’s high-speed rail (HSR) network, and a property sector slump. The Chinese stimulus measures are unlikely to provide a strong boost to oil demand because their purpose is to steady the economy and achieve this year’s growth target of around 5 percent rather than stimulate rapid economic growth. While demand growth cools, supplies from producers such as the US, Brazil, Canada and Guyana is set to grow this year and next by 1.5 million barrels a day. As a result, world supplies will exceed demand in CY25 by more than 1 million barrels a day, even if the 23-nation OPEC+ cartel abandons plans to restore output. If the OPEC group goes ahead with the planned output increase, the market surplus could nearly double from current levels to reaching as much as 1.6 MBPD. This does not bode well for crude prices. Further fuelling the bearish outlook is the incoming administration of U.S. President-elect Donald Trump. His focus on tariffs might lead to lower global growth leading to lower global demand for crude. Trump’s policy of “drill baby drill” also might lead to more US shale supply leading to further demand supply mismatch. Crude markets are extremely forward looking & in absence of geopolitical risk premium, we believe it is a matter of time before we break 70 levels on Brent & head towards 60 and finally 50 levels. Time frame for this trade is between 6-12 months.

Trade Recommendation: Short Brent Future (CMP 85.2), TP 75.15 & SL 90.15 Introduction: We believe that global economy especially Chinese & European economy might be entering another phase of low growth environment. Even US growth at best will be barely anaemic considering the weakening consumer demand recently seen in US retail sales data.

Gold traditionally has been an inflation hedge as well as hedge against geopolitical risk. Since Gold supply is limited, physical demand supply can also play a crucial role in it’s price movement.

Brent price at any given time is a function of demand, supply & the geopolitical risk premium. Currently the global demand looks tepid, supply looks overdone & the geopolitical risk premium is totally missing from it’s pricing.