Two of the most important commodities from the Indian market perspective are oil and gold. The reasons are not far to seek. Crude oil has always had a negative correlation with India’s trade deficit, and hence, had a strong bearing on the rupee value. Secondly, gold was the best reverse proxy for the US dollar and gave a more practical approach to dollar value. Indian markets have traditionally preferred stable median oil prices and stable gold prices. Too low or too high prices of gold and oil have never really favored Indian markets.

Outlook for Brent Crude for the coming year


Brent crude has seen sharp bouts of volatility in the last one year. After touching a high of $85/bbl in October 2018, the prices fell all the way to $51/bbl after the Iran sanctions were diluted by the US at the behest of India and China. In the current calendar year, crude has managed to steady in the range of $62-$65/bbl. There could be 3 possible triggers for oil prices going ahead.

  • OPEC and its allies have sustained supply cuts to the tune of 1.20mn bpd. This is enough to absorb any glut in the market, and thus, any sharp fall from these levels may be slightly hard to come by.
  • The status of swing producer of oil has shifted from Saudi Arabia to the US. However, US shale companies are unable to access funds at low costs and existing wells are working at full capacity. OPEC can neutralize any surplus US output. However, the West Texas region alone is likely to add 2mn bpd of output in 2019.
  • The global economic scenario also holds equal importance. The trade war has already put pressure on oil demand and unless the trade dispute gets resolved, the pressure on demand could keep oil prices lower.

In a nutshell, crude is likely to be range bound with any sharp fall from these levels looking highly unlikely.

Outlook for Gold for the coming year

Gold Spot


Gold prices in the last 1 year are almost back to where they were despite a sharp dip in between. The sharp rally in gold in the last 5 months has been on the back of rising yields globally. In addition, the inversion of the US yield curve raised the spectre of a global slowdown. That was only ratified by the trade war which threatened a full-fledged currency war across global markets. So, what is the outlook for gold?

  • With the trade war between the US and China not showing any clear signs of relenting, gold as an asset class could be in demand. With the US demanding structural changes in China, the solution looks quite remote. This implies weakness in growth with direct impact on growth assets such as equity. Gold could stay above the $1,300/oz mark.
  • There is a more fundamental reason for gold prices to go higher in 2019. In the previous year, the central bank purchases of gold were at a 51-year high of 651 tonnes. This trend could continue as central banks are becoming wary of overly relying on the US dollar as a reserve currency.

Ironically, as the world focuses on crude oil, the real big story in 2019 could be gold. As a trade war, currency war, and central bank buying combine, the big rally could belong to gold.