Global metal prices have seen a stupendous rally. What are the factors driving up the prices and what do technical charts suggest? Shankar Sharma, VC and Joint MD of First Global weighed in on this in a conversation with CNBC-TV18.
According to Sharma, there is a long-awaited uptrend in commodities. “I just think that there is a long-awaited uptrend in commodities which is not going to be just a flaky six months or 1 year kind of thing. I think it is a little bit of a longer thing that is playing out. It is driven by the Fed’s policies of this huge amount of looseness that it has exhibited in the wake of the crisis. It is because of that money is just going to fuel all kinds of things apart from the stock market. So, it has steeped from the stock market into the physical market of commodities,” he said.
He also said that people have sold forward and now have to pay massive backwardation charges.
“If the physical stuff has been sold more than what was available, then you are going to have a situation exactly like what happens in the stock markets when people have short sold more stock than is available and the buyers now demand delivery and you can’t give delivery. So you are supposed to pay a penalty for that which is basically backwardation. Effectively in loose kind of way that is what is happening to the commodity markets where I just think it is just like a giant squeeze; it is something vaguely like the GameStop thing that happened,” he said.
According to Sharma, the rally is now shifting to food from hard commodities and the increase in food prices will hurt countries like India.
“It is now becoming apparent that the Fed’s actions are going to end up in inflation. Now from hard commodities be it oil, aluminium, or iron ore which started the rally sometime last year, now you are seeing that come into food. For a country like India where we are grappling with a huge slowdown in demand and on top of that, you have rising inflation which will then pressure upward your yield and might even lead to a currency issue. It will not hurt the Fed or the US as much as it is will hurt country like India,” he said.
Watch the video for more.
(Edited by : Abhishek Jha)