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Expect crude prices to remain sideways; gold to trade with upward bias

Global oil demand has increased from 97.25 mbpd in 2017 to 98.79 mbpd in 2018 and is set to increase by another 1.3 percent in 2019.




Indian macroeconomic outlook majorly depends on how crude prices move. During 2018, the sharp rally in crude prices internationally impacted the rupee and subsequently Indian equity market also fell. And once crude started falling, Indian equity market too gradually started inching up.
On the other hand, gold price changes reflect more about the prevailing global macro outlook. Gold has been lying low for the large part of 2018 but is rising now as global growth uncertainty has resurfaced.
Going forward, crude prices are expected to remain sideways; gold is expected to trade with an upward bias.
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In Q4CY18 gold price has rallied by 6 percent and has crossed its 200-day moving average. Fundamental demand drivers for gold are jewelry, bars and coins, central bank purchases and ETF flows.
Global jewelry demand has remained stable during the three quarter of 2018 with quarterly demand of about 965 tonnes. The global bar and coin market have grown by 28 percent.
Central bank purchase has continued being strong with Russia particularly buying gold as the country is selling the majority of its US treasury following its policy of de-dollarization.
But ETF purchase has remained tepid with the global gold-backed ETF witnessing quarterly outflow of 103 tonnes during the third quarter of 2018.
Going forward, mine supply output is expected to slow and if global growth reduces or there are any macroeconomic shocks, fresh ETFs purchases would be expected. Comex Gold prices in 2019 are expected to remain positive and move higher towards $1330-1360 per oz.
Brent crude first went up from $66/bbl to $86/bbl and subsequently fell to $53/bbl during 2018. The balance of demand-supply moved from a deficit of 0.8 mbpd in 2017 to 0.1 mbpd surplus in 2018.
Going forward in 2019, the balance of demand-supply is expected to remain in a surplus of 0.26 mbpd as growing oil production in the US will keep the supplies sufficient in the market offsetting any reduction in oil output from OPEC.
Although, any unexpected large reduction in OPEC output will reverse the trend and put a floor on oil prices in 2019. Important here is to also see what happens in the month of May when US waivers to selected Oil importing countries from Iran sanction expires.
Global oil demand has increased from 97.25 mbpd in 2017 to 98.79 mbpd in 2018 and is set to increase by another 1.3 percent in 2019. Inventory though lower than at the end of 2017, remains higher than the five-year average.
During the first half of 2019, Brent crude price is likely to move in the range of $48-$60/bbl. Some bounce back in January can come on account of expected lower supplies from Canada and OPEC planned production cut.
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