Clarity on EU rescue key to crude, gold prices: Barclays

Amrita Sen, commodities research, Barclays Capital explains to CNBC-TV18 that the renewed risk appetite is illusory  and was due to the improvement in risky assets caused by overselling in the market. Sen says that crude and gold will hold steady till there is clarity on the measures that will be implemented to salvage the debt-crisis in Europe.

Amrita Sen, Commodities research, Barclays Capital

Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: What factors would you attribute for this return of risk appetite over the past 48 hours?

A: I wouldn’t say that there is a return of risk appetite. The improvement in risky assets is probably because the market was a bit oversold. But sentiment is still very fragile and any sustained rally is going to be very difficult.

Q: In that case, how will you approach crude in the immediate term? Are there more falls to come or will the rebound of the last twenty-four hours continue above the USD 100 per barrel mark?

A: I think crude is going to stabilise as the USD 100 per barrel level was a bit oversold. OPEC referred to the price of USD 100 per barrel as the level that it sought.

With non-OPEC suppliers also producing crude, the level of USD 100 per barrel is probably going to hold, but sustained upward momentum is going to be a challenge.

There are quite a few key events to watch out for in June- the OPEC meeting, the Iran talks and the Greece elections. It is crucial for the market that a positive conclusion emerges from any of these events.

Q: Demand-supply dynamics might govern a price of USD 100 per barrel, but do you think rumours of easing by central bankers will increase crude prices?

A: Quantitative easing in Europe will infuse liquidity and add little bit more confidence to the resolution of the euro zone crisis which will push crude to USD 110-115 per barrel of Brent. But till any clarity emerges, I think prices will remain under pressure with USD 100 per barrel holding steady.

Q: What about gold which has corrected and stabilised over the last few days? Do you think gold has found it’s bottom, has consolidated and waiting to move up again?

A: The problem with the gold is that the dollar is strengthening and weighing in on prices. But the continued flight from capital and risky
assets should benefit gold prices.

(curtsey : money control)

Rupesh Yatesh Dalal
Head Research Department

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