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“In the last couple of sessions tensions between Russia and Ukraine have flared up and are creating havoc in most of the asset classes. Today, gold and silver prices rose by an average 3%, crude rose by over 8% and most currencies were down in the red against the US dollar. So what led to the tension between the two nations. Russia had put two draft treaties; that Ukraine would not join the NATO as well as a reduction in NATO troops and military hardware stationed in Eastern Europe, and threatened unspecified military response if these demands were not met in full. Russia surprised the market, when reports regarding a full-fledged invasion and attacks in Ukraine by Russian military started to flood in. Amidst the escalation from Russia, U.S., EU and UK levied sanctions with an intention to build pressure and stop the invasion action. Geo-political tensions are developing influencing market participants to take shelter under the safe haven assets, if this issue is not resolved quickly or we see any other development elsewhere i.e. between China and Taiwan or U.S and China we could continue to see positivity in Commodities and especially bullions.

Fundamentals right now are slightly not in favour for the rupee because we are seeing inflation-related concerns on higher crude prices, geopolitical tensions also leading to safe haven buying for the dollar and all this is keeping the rupee under pressure. Over the last few year, RBI has managed to build a war chest with sufficient FX reserves and has been using them to curtail volatility for the rupee. But looking at the current  scenario it seems that geopolitical tensions is influencing  the currency than anything else. We expect the rupee to remain under pressure in the short term and could be facing to levels of 75.80-76.2 and resistance for the rupee could be capped at 74.20.

If the current situation further escalates, investors will cling on to safe haven asset or sit on cash i.e. Dollar. Along, with geo-political tensions, rising inflationary concerns has also been supporting precious metal prices on lower levels, hence supporting our view of buying on dips. Since the start of this year, along with a strong fundamental story we are also seeing an inflow in the overall Gold ETF further supporting the market sentiment. Market participants are also keeping an eye on the Fed policy meet scheduled next month which could weigh on precious metal on the short term, although this can be used as buying opportunity. Investor could trade on the exchange or invest in SGB or any other platform available like ETF or Digital gold based on one’s risk appetite. We continue to maintain a positive bias, on quarterly basis, could see the targets of Rs.52,500 and 54,000, with the supports at Rs. 47,850 and Rs. 46,400. Keeping the above variables in mind, buying on dips strategy can be continued and an extended rally can be seen at around Rs.55000 over the next 12 months.

Recent move in Crude was triggered by President Putin’s latest move which provoked a full onslaught of US and EU sanctions, which could bring Russian energy supplies to Europe in the crosshairs. Prices could inch higher with every unfortunate turn of events. Should Kremlin cut off gas exports to Europe, all the world’s gas producers put together do not have the spare capacity to plug the gap. OPEC+ has some spare capacity, but it is in oil. Whether it will deem it prudent to release it and how quickly it could unleash the barrels is a question mark. SPR releases could help, but again, those are oil, not gas. Iran deal could help, but that too is oil and the entire 1.3 million b/d of additional capacity locked out by US sanctions may not be able to ramp up quickly.

Base metals have been on a roll for much of 2021, and 2022 got further impetus from Chinese Power led shutdowns and changing monetary policies globally. The latest triggers comes from Ukraine – Russian geo political tensions which has led to sharp volatility in most asset classes. Before this Russia-Ukraine crisis escalated, select metals were already seeing very strong fundamentals and there are possibilities of United States and its European allies to announce fresh sanctions against Russia. Aluminum has added over 40% gains in 2021 and added ~20% gains in 2022. Russia produces around 6% of the world's aluminium and 7% of mined nickel. Sanctions on aluminium maker Rusal in 2018 drove the metal's price up 35% in days. Used in stainless steel and batteries for electric vehicles, nickel is up around 20% this year having risen 25% in 2021. Lower inventories in metals along with strong consistent demand has been already supporting the backdrop, and with the latest trigger, it looks like the metal has got some more feet to rally.