Trade Recommendation

We believe current low sugar prices globally are pricing in maximum bearishness. ICE Mar26 Sugar futures ended the session on Friday at USc 14.1/lb, which marked the lowest close on the first position contract since the end of 2020. Current market sentiment of widespread expectations for the new season to return a global surplus continues to increase, speculators are believed to have driven selling pressure. Producer hedging in Brazil as well as in other producing areas, including Thailand and Central America remains behind the seasonal pace according to anecdotal reports, which could well be providing speculators with some reassurance that potential short-covering rallies would be met with fresh origin selling pressure. Market is currently assuming that production in each of Brazil, India, and Thailand is expected to increase period-on-period in tandem over the next twelve months. We believe this to be not true as weather conditions in all three countries have had a strong monsoon for continuous 3 years now and are poised to see a failure in monsoon in either of the 3 regions above. The fact that raw sugar futures prices have recently fallen to their lowest level in 5 years, mills in Centre-South Brazil, the world’s largest cane growing region, have started making ethanol at the expense of sugar. If these low sugar prices are sustained into 2026 it’s possible that Brazilian sugar production in 2026/27 could be materially lower. We also believe that demand for finished product stocks around the world will rebuild now that sugar prices are half what they were at their 2023 peak. This should also provide some support to sugar prices. For above reasons we see 2025-2026 sugar production outpacing demand by 7 million tonnes where as market pricing is currently around 8.5-9 million tonnes. Positioning wise, money managers have decreased their bullish white sugar bets by 4,818 net-long positions to 18,728 as per ICE data. This is least bullish in last 17 weeks. The long-only total was the highest in three weeks where as the short only was the highest in 9 months. Technically the 14.10 level is the 76.4 % retracement level of the entire up move from decadal lows of 11.77 to decadal highs of 22. Trade Summary: Long Sugar (CMP 14.10$/lb), TP 18$/lb & SL 11.85$/lb. Risks to the view: A strong monsoon across Brazil, India & Thailand simultaneously.

Gold had a dream run since last 12 months almost rising 40% since June’24. It has been the most favored investment destination by central banks globally in the current theme of dedollarisation, increase in geopolitical risk premium and a large fall in DXY from 110 levels to 97 levels currently. Almost all the stars were aligned for it’s dream run in the last 12 months. But we believe that the recent 3500 high achieved on 22nd April is a medium term high and it is unlikely that Gold rises above it. We believe that Gold market deficit has peaked for now. With geopolitical risk premium waning as global equities surge ahead to new record highs, we believe Gold destination as a safe haven will be questioned sooner than later. We believe Gold has broken down from a long-term channel recently & is headed towards 2985 levels support. Stop to this view is a weekly close above 3460.

Current Gold to Silver Ratio is about 84.65. Assuming that Gold Silver Ratio reverts back to average of the 21st century at 60:1, the price parity for Silver w.r.t. Gold would be in the range of $40-45 levels based upon current Gold levels of 2565. With the Silver market widely tipped to experience a fourth straight year of structural market deficits in 2024, many analysts view this renewed strength as just the start of a more bullish environment for silver. According to the Silver Institute’s estimates in the 2024 WSS, the global silver deficit will rise by 17 percent to 215.3 million troy ounces in 2024 due to an expected 2-percent growth in demand again led by robust industrial consumption combined with a 1-percent decline in total supply. The current short-term correction is an opportunity to buy Silver as per above facts. Technically, Silver is currently testing 100 DMA at 30.35. We expect it to consolidate around these levels and move towards 40 levels in the next 6-9 months. Risk to the view is Dollar index going above 110.

We believe that weakening global demand, increasing supply, a stronger dollar, policies of new Trump administration & lack of geopolitical risk triggers can lead to Brent testing 50 levels by June’25. We believe the biggest issue with crude demand globally is China. Between 2000 and 2023, China accounted for 50 percent of the growth in world oil demand, averaging an annual increase of 518,000 barrels per day (bpd). For CY24, this no is now 180,000 bpd, less than 10% of the the growth in world oil demand. There are both cyclical and structural factors, with the latter already starting to weigh on consumption. China’s oil demand is growing more slowly because of rising sales of new energy vehicles (NEVs)—a category that includes battery electric vehicles, plug-in hybrid electric vehicles, and fuel cell electric vehicles—China’s high-speed rail (HSR) network, and a property sector slump. The Chinese stimulus measures are unlikely to provide a strong boost to oil demand because their purpose is to steady the economy and achieve this year’s growth target of around 5 percent rather than stimulate rapid economic growth. While demand growth cools, supplies from producers such as the US, Brazil, Canada and Guyana is set to grow this year and next by 1.5 million barrels a day. As a result, world supplies will exceed demand in CY25 by more than 1 million barrels a day, even if the 23-nation OPEC+ cartel abandons plans to restore output. If the OPEC group goes ahead with the planned output increase, the market surplus could nearly double from current levels to reaching as much as 1.6 MBPD. This does not bode well for crude prices. Further fuelling the bearish outlook is the incoming administration of U.S. President-elect Donald Trump. His focus on tariffs might lead to lower global growth leading to lower global demand for crude. Trump’s policy of “drill baby drill” also might lead to more US shale supply leading to further demand supply mismatch. Crude markets are extremely forward looking & in absence of geopolitical risk premium, we believe it is a matter of time before we break 70 levels on Brent & head towards 60 and finally 50 levels. Time frame for this trade is between 6-12 months.

Trade Recommendation: Short Brent Future (CMP 85.2), TP 75.15 & SL 90.15 Introduction: We believe that global economy especially Chinese & European economy might be entering another phase of low growth environment. Even US growth at best will be barely anaemic considering the weakening consumer demand recently seen in US retail sales data.

Gold traditionally has been an inflation hedge as well as hedge against geopolitical risk. Since Gold supply is limited, physical demand supply can also play a crucial role in it’s price movement.