Investment Ideas

Commodities in 2017: Options in the basket

The year 2016 broadly saw a positive trend in major commodities. On one hand, precious metals failed to convert the positivity seen in first half into a rally while on the other hand, base metals and energy segment performed above expectations. For agro commodities, 2016 can be described as a dull year amid various policy impacts and restrictions. Let us see, what the New Year has in store for commodity market as SEBI hints to start options trading anytime soon.

bullion 2017

Bullion: For 2016, we expected bullion segment to remain bearish. However, the then technically over-sold status of Gold and Silver propelled good buying support in the first half. It was in the second half, after July, that the primary bearish trend showed its true colors. The sell-off in bullion is likely to get extended in 2017 with small spells of short term rallies. Our last year’s target range of $950-$900 in gold may be achieved this year. In Indian market, we may see prices tumbling towards Rs 24500-22000 range. Silver is having key support at $16 which it briefly breached a few days ago but the real breakdown will take place when it closes below it on monthly basis. In worst case, the breakdown may take prices towards next important support of $11. In Indian market, prices may see a downside range of Rs 30000-27000.
energy
Energy: After hitting our forecasted level of $26 for 2016, Crude oil bounced back sharply in last ten months to reclaim its bullish stature. The bounce back, in fact, turned into a full-fledged rally as prices saw a more than 100 percent rise. In 2017 too, prices are expected to remain on the positive note on the back of production cut agreement between OPEC and non-OPEC members. The rally now has strong legs on technical chart and it would not be surprising if prices touch levels above $72 within first three quarters. At MCX, a price range around Rs 3300 qualifies as a good buying point. Natural Gas followed in crude oil’s footsteps and showed a twofold growth in last ten months. The impulsive rally is likely to continue in the first half of 2017 while we may see a follow through correction in the second half. Prices at MCX may see upside till Rs 330-360. Buy on small dips from here.

zinc metal

Base Metals: 2016 will be remembered for unprecedented rally seen in Zinc and Lead. Both metals are likely to continue to shine amid an interesting tussle over price spread. Zinc may add another 30 percent to go past levels seen in 2007 while Lead is also likely to perform on the similar note. The strategy should be to go long at current levels in both metals while traders interested in spread strategy should buy Zinc and sell Lead at current difference of Rs 32 for a target of Rs 45 to Rs 50 in next few months. Copper and Aluminium, though immersed in a low profile, are also expected to better their performance in 2017 but traders should wait for a healthy correction from here to take buying positions. Nickel is also likely to take a decisive turn in 2017 after trading in a positive yet lackluster manner. The distant cousin of silver may see an upper range of Rs 900-1050 in 2017.

Agro Commodities

Agro Commodities: Jeera performed perfectly in line with our forecast for 2016. As expected, the aromatic spice shifted in impulsive bullish rally in second half of 2016 and the positive is likely to continue in 2017 as well with minor pull backs. Jeera may trade in Rs 22000 – Rs 25000 price territory this year. Any correction towards Rs 16000 – Rs 15500 can be used for positional buying. In soy complex, Soybean and Mustard seed may extend their downside by another 10% to 15% in the first quarter before regaining the momentum in second half of the year. Soybean may reclaim Rs 4000 level while Mustard seed can touch Rs 5500 mark post June. Guar complex is likely come out of the sluggish zone this year and take a decisive turn. We may get to see a consistent rally above Rs 3500 which may take prices towards Rs 5500-6000 range.

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