Commodity markets were under pressure on Monday as the US dollar index strengthened to a one month high. China's Evergrande Groups debt crisis also led to a decline in metal prices including steel.
In an interview with CNBC-TV18's Manisha Gupta, Jonathan Barratt of Probis Securities said that the Evergrande Group has $300 billion worth of debt and that has implications that run right through the commodity complex.
"It is quite a red day today in the commodity markets. There are a lot of scary points over Evergrande, they have $300 billion worth of debt and that has implications that run right through the commodity complex. So quite a negative outlook at the moment. We really need to see some clarity from Evergrande in terms of the outcome and that will help to restore the markets from the downwards pressure we are seeing at the moment," Barratt said.
He is of the view that gold prices look cheap at current levels and expects investors to move to gold because of the systemic risks in the market.
"I follow the gold-silver ratio and that has been trading quite nicely up around 78 but I get a sense that gold will either be treated as a major low here and we do get issues of systemic risk coming through the market that will support gold," he said.
Gold prices are under pressure due to a stronger US dollar.
"In times where we do get these concerns or financial issues in the market, people don't go to gold at an instance, instead what they tend to do is sell it because it allows to get a release in cash flow and then we find gold starting to move up. So if we do get short sharp movements to the lower end of the market as a result of what we are seeing, I think you will find that investors will go to gold. Gold at this level, I think is very cheap and if it comes back to $1,730 it is even cheaper," he added.
Watch the video for more.