Gold, Silver, Copper Daily Forecast: Bearish or Bullish Shift Ahead?

India’s central bank today left its inflation forecast for this fiscal year unchanged at 4.5% and hinted of inflation target being in sight, even as the country braces for a scorching summer amid a spike in crude oil prices and persisting worries about supply chain due to the Red Sea crisis.

RBI Governor and MPC Chair Shaktikanta Das two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk, and appears to be returning to the forest.

"We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished," Das said.

The governor moved to the elephant reference from his previous analogy of keeping an 'Arjuna's eye'.

Nonetheless, the governor said RBI should not lower its guard but continue to work towards ensuring that inflation aligns durably and sustainably to the target of 4%.

"Our goal is in sight and we must remain vigilant," he said.

The central bank now sees inflation for Q1, Q2, Q3 and Q4 of this fiscal year at 4.9%, 3.8%, 4.6% and 4.5%, respectively. In the February policy, the monetary authority had pegged the inflation readings at 5%, 4%, 4.6% and 4.7% respectively, assuming a normal monsoon.

The Reserve Bank of India's (RBI) Monetary Policy Committee with a five-to-one majority decided to keep the repo rate- key lending rate- unchanged at 6.5% for the seventh time in a row. The rate-setting panel also left the policy stance unchanged with focus on withdrawal of accommodation.

"Inflation (for global economies) is moving closer to targets but the last mile is turning out to be challenging," said while announcing the policy decisions.

Meanwhile, projecting a positive outlook for the ongoing financial year, kept the real GDP growth forecast for FY25 unchanged at 7%.

Robust growth prospects provide policy space to remain focused on bringing inflation to 4% target, he said.

"The monetary policy stance announced today reflects that the RBI is evenly balancing the two divergent objectives of growth and inflation. It seems a case of full commitment to growth with even higher commitment to inflation targets. I hope we will see sustained growth and softened inflation,” said Anu Aggarwal, President & Head Corporate Banking, Kotak Mahindra Bank.

The RBI has an inflation target of 4% (with a leeway of 2 percentage points on either side). The country's retail inflation was closest to the 4%-mark last in January 2021 at 4.06%.

In February, India's retail inflation remained largely unchanged at 5.09% compared with 5.10% owing to higher food prices that sparked economists to believe that the policy rate-setting panel will leave key rates unchanged in April. Food inflation rate in February quickened to 8.7% from 8.3% in the previous month, driven by a rise in vegetable inflation to a seven-month high of 30.2%, compared to 27.1% earlier.

Experts had also indicated that a higher food inflation number could keep overall inflation from declining significantly.

Prices of key vegetables such as onion, tomato and potato have risen and a Crisil analysis recently showed the cost of a veg thali in India rose 7% in March.

Despite volatile food inflation in February, core inflation, excluding food and fuel, has shown a downward trend. However, concerns persist regarding the impact of weather variations on inflation and economic stability.

Core inflation has declined steadily over the past 9 months to its lowest level in the series, Das said today, adding early indication of normal monsoon augurs well for kharif season.

"High and persistent food inflation could unhinge anchoring of inflation expectations which is underway," Das said.

"While low core inflation provides comfort, the uncertainty on food inflation remains a worry," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

India is preparing for intense heat from April to June, especially in the central and western peninsular regions. The anticipated heatwave could affect the agricultural economy, resulting in inflationary pressures due to rising commodity prices.

"Frequent and overlapping adverse climate shocks pose key upside risks to the outlook on international and domestic food prices, Shaktikanta Das said today.

Meanwhile, Brent and WTI futures have reached their highest levels in over five months, driven by concerns about Ukraine's recent attacks on Russian refineries and the potential expansion of conflict in the Middle East, which could disrupt oil supplies.

The recent uptick in crude oil prices need to be closely monitored, Das said. "The continuing geopolitical tensions pose upside risks to commodity prices," he added.

The Indian government has also warned that the country's inflation and economic growth face threats due to the surge in oil prices triggered by disruptions in the Red Sea. This underscores the importance of diversifying trade routes to mitigate such risks.

While the RBI governor has vowed to keep ‘Arjuna’s eye’ on inflation and bring it down to mandated 4% level, the inflation rate of India has hovered above the target for months. Das had expanded the scope of his frequently cited 'Arjuna' analogy to convey that Mint Road takes into account various factors beyond just inflation when shaping policies, while flagging that headline inflation remains vulnerable to recurring and overlapping shocks due to overseas and domestic factors.

Shaktikanta Das has repeatedly played down the likelihood of a rate reduction unless inflation stabilises around the RBI's 4% target. Economists now believe the central bank would prefer to monitor the monsoon's progress before considering any shift towards a softer monetary policy.

India’s policymakers have been working to keep inflation in check through a mixture of monetary and fiscal interventions, be it through rates or export curbs.

Risk appetite got a hit yesterday as an army of Federal Reserve (Fed) speakers sounded cautious about the timing of the first rate cut and as the barrel of Brent spiked past the $90pb level on rising tensions between Iran and Israel after Israel bombed the Iranian embassy in Damascus earlier this week. The barrel of US crude spiked to $87.50pb. So far, tensions in the Middle East didn't impact oil supply significantly. As a result, we saw a sustainable rise in oil prices – not a spike. But Iran's direct involvement could mark a new milestone in the Middle East conflict and could back a rapid rise in oil prices in the near term. In this context, we can't rule out the risk of a short-term rally in oil prices to $95/100pb range.

The latest spike in oil prices will be reflected in the upcoming inflation reads and may derail the Fed from its ‘three rate cuts' plan for this year. Indeed, when we listen to the Fed speakers, we sense that there is an increasing caution regarding that expectation. Neel Kashkari for example, who used to be a dovish voice, said yesterday that the January and February inflation readings were ‘a little bit concerning' and that the Fed may not cut rates at all this year. Happily, he doesn't vote this year. But earlier this week, Raphael Bostic said that he expects just one cut this year – after the election, and Patrick Harker and Thomas Barkin also backed the idea of a patient approach from the Fed as the uptick in inflation and the rising oil prices don't necessarily point at further easing in inflation toward the Fed's 2% target.

The combination of cautious Fed remarks and oil rally spoiled the market mood ahead of today's US jobs data. The S&P500 fell more than 1%, as Nasdaq 100 retreated 1.55%. The US yields however remained soft on the back of a flight to safety, and the US dollar rebounded in Asia after hitting a two-week low.

Today, all eyes are on the US jobs data, that should distinguish between those expecting that the Fed will cut interest rates three times this year and those who bet that the Fed will barely cut the rates with strong growth and rising inflation. The US economy is expected to have added 212'000 new nonfarm jobs last month, the average earnings may have accelerated on a monthly basis and decelerated on a yearly basis. The unemployment is seen steady at 3.9%. Note that the mention of job cuts in earnings call have been rising since the beginning of the year, yet we haven't yet seen a material impact on official data. In fact, the past three NFP numbers exceeded market expectations by around 78'000 and the US economy added around 280'000 new nonfarm jobs on average over the past three months. Another higher-than-expected NFP and hotter-than-expected wages growth could lead to a further pullback in dovish Fed expectations, weigh on stock and bond valuations and boost the US dollar. The sweetest combination would be a reasonably strong NFP number and softer wages growth. The latter would cement the expectation of a soft landing and give support to equities.

The minutes from the latest European Central Bank (ECB) meeting showed that the Eurozone officials have a clearer opinion on the timing of the first rate hike: a June cut looks like a done deal even though ECB Chief Christine Lagarde warned that the ECB is not willing to commit to further cuts beyond June.

In Switzerland, a further fall in inflation to just 1% on a yearly basis in March (and 0% on a monthly basis) hints that the Swiss National Bank (SNB) is in position to opt for more rate cuts this year to take advantage of a period where they could loosen the franc and boost the Swiss economy – especially for Swiss exporters that have suffered the consequences of a too-strong Swiss franc during the SNB's fight against inflation. And franc has room to soften, the USDCHF has not yet reached the 38.2% Fibonacci retracement on 2022-2023 selloff, while the EURCHF recovered just a third of the post-pandemic appreciation. Carry traders – which borrow low-yielding currencies to invest in higher yielding ones – are gently leaving the yen – where the Bank of Japan's (BoJ) next move could only be a hawkish move – and turning to Swiss francs for funding their carry trades. And the latter should help the Swiss franc give back strength, at least until the other central banks decide that it's time for them to act, as well.

A bounceback of initial public offerings (IPOs) across Europe saw almost €5bn (£4.3bn) worth of new listings in the first quarter, but London contributed just over €300m of the total, according to figures from PwC.

Europe’s IPO blossoming will do little to dispel concern that London’s once-dominant stock market is in trouble as its float famine continues.

The German, Swiss and Greek stock exchanges all outpaced London, as an IPO freeze triggered by gloomy economic data and high inflation started to thaw.

The blockbuster flotation of skincare brand Galderma on the SIX Swiss Exchange led the charge, raising €2bn.

Deutsche Borse, long considered the main European rival to the London exchange, also attracted two major new debuts.

Renk, a German manufacturer of tank engines, raised €450m while German perfume retailer Douglas raised €890m after its owner CVC Capital cashed out. Athens also saw the listing of the city’s Eleftherios Venizelos International Airport.

The blockbuster haul left London further in the shade, with the City’s listing of Kazakh airline Air Astana the best on offer at €324m.

PwC UK Capital Markets partner Vhernie Manickavasagar said the continental boom had been led by domestic companies and London remained the choice for international organisations.

"London is still the market people look to outside of their domestic market," she said.

"The IPOs you've seen in Europe are domestic IPOs on the domestic market. Air Astana shows that London is still the market that Europeans go for when they want an international listing outside of their domestic market."

She added that the revival on the Continent could prompt UK boardrooms to consider a float.

“People are now seeing that the markets are bouncing back but companies are only now starting to think through their processes, which means that they’re not going to come through until the end of the year.

“We are also going to have some significant changes (in London) which people are watching, and you’ve not had that in the European markets to the same extent.”

Better economic data has encouraged more companies to tap the stock market, making the lack of floats in London even more puzzling.

High stock market volatility puts off floating companies over fears the IPO will go badly but this has recently fallen.

Lower inflation and more predictable interest rate expectations have dampened down volatility, opening the door for more new listings.

One City broker blamed the drought on the lack of demand from UK fund managers and said the current level of IPOs in the London market was “woeful.”

The main London market welcomed just two new listings last quarter, according to Dealogic, which is the worst quarter in volume terms since the data company started collecting figures in 1995.

"There is no shortage of companies that could come and IPO on the exchange," the broker said.

"You only need one or two big listings to start to get the dominos falling. The issue is with the demand. The good companies aren't coming because [the fund managers won't back them.

"They won't come to market until the demand side is fixed."

Chancellor Jeremy Hunt has put forward a raft of reforms to try and fix the problem.

The Edinburgh Reforms, a package of measures to remove onerous listing restrictions on companies, have been coupled with supply side changes such as the British Isa to try and dispel the gloom hanging over UK stocks.

Allocations to UK equities have been on a steady decline for several years.

Estimates from Numis suggest that March saw another net outflow from UK equity funds of around £2.6bn, taking the total for the year to £4.6bn.

That means 2024 is on course for another year of net outflows, the ninth consecutive year when more money has left UK equity funds than has been added since 2015.

when more money has left UK equity funds than has been added since 2015.

The less cash that flows into UK equities, the lower the valuations, which ultimately makes the UK market a less attractive place to list a company.

The UK valuation gap has been made even starker by the runaway success of the Nasdaq, where the “Magnificent Seven” – Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla – has made London seem even more unattractive.

However City fund manager Gervais Williams, who heads equities at Premier Miton, said a string of IPO duds had left many sceptical about the quality of new listings.

“We’ve had a series of pretty rubbish IPOs,” he said.

“Whatever reason it isn’t working as well as it could do, especially given that supposedly we’re high grading the IPOs, given there aren’t that many of them.”

Significant IPOs in the London market, such as CAB Payments, have burned many fund managers. The stock, seen as a possible catalyst for a listing revival last year, has fallen 60pc since floating.

Looking ahead, the prospects of London attracting significant IPOs in future looks uncertain.

The possible listing of Unilever’s ice cream division could be a candidate for London, but chief executive Hein Schumacher recently said that Amsterdam was in the lead for any listing.

CVC, the private equity firm behind the Six Nations rugby tournament, is also set to list in Amsterdam rather than London in another major blow for the capital.

Flutter Entertainment is due to change its primary listing to New York from London following similar moves from companies including TUI, which shifted its main listing to Frankfurt.

Alongside this, a drumbeat of other candidates could follow.

Last week analysts at Deutsche Bank said FTSE 100 commodity trading giant Glencore could be the next company to up sticks from London and transfer to New York.

The group had already planned to spin out its coal unit and list this in New York rather than London, prompting speculation that the whole business could up sticks from London.

However, Mr Williams said there was still fund manager demand for good companies, citing the possible float of Raspberry Pi as a possible catalyst for more issues.

“I don’t think the market is entirely closed at all,” he said. “Clearly you’ve got to have some great issues and I think if you get two or three good issues then the market will open up again.”

German factory orders rose in February after a sharp drop at the start of the year — adding to hopes that the economy is bottoming out and that any possible recession might be mild and short-lived.

Data released Friday showed a 0.2% increase in demand from the previous month. That was worse than the median estimate of 0.7% in a Bloomberg survey. The improvement was due to the machinery and equipment sector, as well as pharma and chemicals, the statistics agency said.

A less volatile three-month reading showed a 2.8% rise from the previous period, according to Destatis.

Germany was the only Group of Seven economy to shrink last year and is now flirting with a recession. The Bundesbank has warned that output could contract in the January-March period after already falling 0.3% in the final three months of 2023.

Economists surveyed by Bloomberg also predict another contraction of 0.1% in the first quarter.

The economic problems are largely down to the cutoff of Russian energy supplies, weak Asian demand for exports, problems among the country’s car manufacturers in adapting to the green transition and high interest rates.

But Bundesbank insists that a severe downturn isn’t likely and its President Joachim Nagel has repeatedly rejected the notion that Germany is again the “sick man” of Europe.

However, its weakness is being felt in the wider euro zone, whose 20-nation economy narrowly avoided a recession in the second half of 2023.

Recent data for the German economy was mixed. The ZEW expectations survey and the Ifo business climate index both improved more than anticipated in March.

However, an index of factory activity from S&P Global unexpectedly declined further below the threshold signaling expansion.

Institutes that advise the government recently lowered the forecast significantly. Output will rise just 0.1% in 2024, compared to a previous forecast for 1.3% expansion, they said. Growth is seen picking up to 1.4% in 2025.

Funds have built up record short positions on the London Metal Exchange (LME) lead contract.

This is not entirely surprising given the rapid deterioration in market optics.

LME inventories of the heavy metal have leapt to 11-year highs thanks to its accelerated deliveries into exchange warehouses over the last few weeks.

Indeed, the mass warranting of 67,350 metric tons on March 19 was the largest single-day stocks arrival event in the London lead market since at least 1998.

LME time-spreads have collapsed under the weight of surplus metal, the cash discount to three-month delivery flexing out to levels last seen in 1992.

Curiously, the only thing that hasn't imploded is the outright price, last at $2,115 per ton, which remains trapped in its long-standing $2,000-2,300 trading range.

Investment funds were bullish about lead's prospects for most of last year, with long positions peaking in September when the price was challenging the upper end of its trading range.

After lead failed to break higher, positioning gyrated later in 2023 and the first two months of 2024 before turning decidedly bearish in March.

Investment funds were net short of the LME contract to the tune of 15,356 contracts at the close of last week.

It's the largest collective bet on lower prices since the exchange started publishing its Commitment of Traders Report in 2018.

The only comparable flexing of bear muscles by the investment community occurred in September 2022, when the price slumped to a two-year low of $1,746 per ton and the speculative net short peaked at 14,052 contracts.

Outright short positions have surged past 2022 levels to a fresh peak of 31,962 contracts, equivalent to almost 800,000 tons of selling.

LME stocks of lead stood at a depleted 25,150 metric tons at the start of 2023, equivalent to less than a day's global usage.

A string of smelter outages over the previous two years had tightened both physical and paper markets, culminating in a sizeable supply deficit of 134,000 tons in 2022, according to the International Lead and Zinc Study Group (ILZSG).

After sliding by 1.7% in 2022, global refined lead production bounced back by 2.8% in 2023, shifting the supply-demand balance back into a 92,000-ton surplus.

LME stocks rose by 109,000 tons last year, closely matching ILZSG's assessment of the changed market dynamics.

Inventory then fell over the first part of January, a peak demand season for lead due to higher automotive battery failure rates during the northern hemisphere winter months.

Automotive batteries account for around 58% of lead usage, according to Macquarie Bank. Replacement batteries represent 77% of that total, demand peaking during the coldest and hottest months of the year.

Seasonal lead stock patterns, however, didn't last long.

The arrivals started in the last week of January. A total 88,875 tons of metal were warranted at LME warehouses in Singapore over the ensuing month.

Another 18,000 tons followed at the end of February. And then another 71,000 tons in the middle of March, including a bumper 64,550 tons on March 19.

There were also arrivals in Europe and the South Korean port of Busan.

Deliveries onto LME warrant have totalled almost 210,000 tons so far this year and the headline stocks figure hit an 11-year high of 275,925 tons on Tuesday.

The sheer scale of the deliveries suggest these are partly off-market stocks being drawn into the statistical light of exchange trading by a favourable storage deal.

Zinc has seen similar wholesale inventory movements as stocks financiers arbitrage warehouse costs between high-cost LME storage and lower-cost off-exchange storage.

That said, it's still a lot of lead. LME registered stocks now represent almost eight days worth of global usage, up from less than a day just over a year ago.

One driver of the glut is the strength of Chinese exports. The country shipped 188,000 tons of refined metal last year, up 62% on 2022 levels and the highest annual total since 2007.

Some of that metal seems to have headed direct to LME warehouses. The amount of registered Chinese metal in the LME system jumped from zero at the start of 2023 to 51,175 tons at the end of February, by which stage it accounted for 31% of the on-warrant total.

Some of the exports have likely displaced supply in other Asian countries, generating a second wave of deliveries to the market of last resort.

The deluge of deliveries saw the cash-to-three-months contango balloon out to $50.68 per ton on March 20, a level last surpassed in June 1992.

The period has since tightened back to $30 per ton but by lead's historical standards that's still a super-contango and a warning sign that there may be more metal on its way to LME sheds.

The three-month price, however, has shown remarkable resilience, dipping sharply in late March but only to confirm support at the $2,000 per ton level.

Investment funds looking for a steeper move on the downside will have been disappointed and some may even already be covering on this week's recovery bounce.

However, it's going to take a lot to reverse the negative optics of the LME stocks surge, particularly if it continues over the coming days and weeks.

The big question is just how much more lead is there out there?

On the hourly chart of AUD/USD at FXOpen, the pair started a fresh increase from the 0.6480 support. The Aussie Dollar was able to clear the 0.6535 resistance to move into a positive zone against the US Dollar.

There was a close above the 0.6550 resistance and the 50-hour simple moving average. Finally, the pair tested the 0.6620 zone. A high was formed near 0.6619 and the pair is now correcting gains.

There was a move below the 0.6600 level. The pair declined below the 23.6% Fib retracement level of the upward move from the 0.6480 swing low to the 0.6619 high. On the downside, initial support is near the 50% Fib retracement level of the upward move from the 0.6480 swing low to the 0.6619 high at 0.6550.

There is also a key bullish trend line forming with support at 0.6550. The next support could be 0.6535. If there is a downside break below the 0.6535 support, the pair could extend its decline toward the 0.6480 level. Any more losses might signal a move toward 0.6440.

On the upside, the AUD/USD chart indicates that the pair is now facing resistance near 0.6580. The first major resistance might be 0.6600. An upside break above the 0.6600 resistance might send the pair further higher.

The next major resistance is near the 0.6620 level. Any more gains could clear the path for a move toward the 0.6650 resistance zone.

On the hourly chart of NZD/USD on FXOpen, the pair started a steady increase from the 0.5940 level. The New Zealand Dollar broke the 0.6000 resistance to start the recent increase against the US Dollar.

The pair settled above 0.6000 and the 50-hour simple moving average. It tested the 0.6050 zone and is currently correcting gains. The pair corrected lower below the 0.6030 level. The pair also traded below the 23.6% Fib retracement level of the upward wave from the 0.5939 swing low to the 0.6046 high.

The NZD/USD chart suggests that the RSI is still below 50 and signaling more downsides. On the downside, there is major support forming near 0.6010.

The next major support is near the 50% Fib retracement level of the upward wave from the 0.5939 swing low to the 0.6046 high at 0.5995. There is also a major bullish trend line forming with support at 0.5995.

If there is a downside break below the 0.5995 support, the pair might slide toward the 0.5965 support. Any more losses could lead NZD/USD in a bearish zone to 0.5940.

On the upside, the pair might struggle near 0.6030. The next major resistance is near the 0.6045 level. A clear move above the 0.6045 level might even push the pair toward the 0.6080 level. Any more gains might clear the path for a move toward the 0.6120 resistance zone in the coming days.