2022: A Year for Commodity Traders

Hello, friends. This is Vijay Bhambwani. I hope you're doing great in the markets and my videos are helping you decipher the signals of the market a whole lot better, you have a better understanding of the market, and I am able to help you make some more money.

You see, in this video, the idea to record this video actually came to me recently when I walked down from my building and along the storefronts, I saw Christmas trees etc being put up and the festive cheer beginning to come to the market.

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Now have Christmas is here, so is the new Year and it is customary to basically start to guestimate, please understand, I'm using the word guestimate here, it's time to guesstimate what the markets will look like in the coming calendar year 2022.

Now since, I'm going to talk about commodities only, this is going to be about base metals, it's going to be about energy, and it's going to be about precious metals. I will also share my two bits, sharing my logic as to why I am saying what I am saying.

So let's first start with industrial metals or base metals. I have been fairly consistent and persistent rather, in my hypothesis that there is no supercycle in base metals.

It's been a combination of easy and abundant money floating around in the markets and it's been supply side constraints because of covid. The supply chain is broken. Containers are piling up along the docks and labour has basically returned back to wherever they are from, especially in a migrant labour, which is what is triggering a whole lot of disruption.

Now if you were to actually a care to see what's happening in the mainstream and in the social media, where news is concerned, majority of industrial metal production comes from Latin America, also known as LatAm. This is something that I keep mentioning a lot on my social media posts.

If you see these guys, they are up to here in debt. They owe the international monetary lending institutions, a lot of money, a lot of money, and they're categorised as emerging markets, which means their economies have not yet completely taken off. They're almost there, but they are not really, really there.

So they need to attract a lot of money and because they are dependent on overseas funds, any movement in the USD especially, if the dollar was to harden, which you see has started since the last couple of weeks, their currency, local currency goes down and they start to import inflation and when they start to import inflation, they need to push up interest rates.

So Peru, Chile, Brazil, Mexico, Argentina, they've all started to jack up interest rates. This is also to attract international funding.

So there are three ways Latin American countries will start to basically raise or conserve cash. Number one, raise interest rates, attract more money. Number two, re-negotiate in very polite terms, but in real terms defer international loan repayments.

Of course officially, by offering a higher rate of interest saying, okay, don't take the money now, let us negotiate, sit on the table. Maybe you can give us three years, four years, five years extension and we will pay you higher interest rates.

And the third and the most critical factor in trying to raise money. To export more of what they have to repay their debt. Industrial metals. Which is why I think supercycle, I always talk about supercycle with a great deal of cynicism. The supercycle theory seems to be a brandishing in thin air.

So next year industrial metal prices are likely to cool down. They won't be as volatile as they were throughout 2020 and calendar year 2021. I am not saying that is going to be a bear market. I have never said that is going to be a bear market in base metals. I am saying that it's not a supercycle. It is a supply shortage triggered bull market, but definitely not a supercycle.

So next year there will be a whole lot more logic. There will be a whole lot of quiet movement as compared to the rough and ready sporadic patches of movement, which is a good thing.

Let's now come to energy. I have again said that oil will not go to 100, if it does go to 100, it will kiss the 100 level, it will possibly be a photo opportunity and then, over a period of time, it will come down.

For the sake of clarity, do note, in my past videos, I have been talking about the Western Texas Intermediate or WTI. Not the Brent Oil, because Brent is not something India imports. We have started importing from US, and what we have been buying primarily from the Middle East countries is a mixture of Dubai sour crude and other grades of crude oil. So Brent is more expensive than WTI. I have never talked about Brent. I'm talking of Western Texas Intermediate.

Here again, there's a reason why I believe that the idea about oil going to 100, 200, there are even talks about 300 dollars a barrel in very small, sporadic long term options contracts, deals that are hearing in social media.

In my last video on oil, I said US$100 and above his kite flying. I stick to that. You need to watch the amount of debt that these Middle Eastern countries have taken. Now again, like the Latin American countries, how do the Middle Eastern countries hope to balance their budget by selling what they have. Crude oil and natural gas.

Second factor, which is, in my humble opinion, the market experts are completely ignoring. In 2022 you have the mid-term elections in America, and it's very critical that a President Joe Biden try and get inflation lower and cut corporate raw material costs. Now what do the Middle East countries take from America? Number one military hardware. Number two military ammunition. Number three armed forces training. Number four computer hardware. Number five, medical technology. Number six, and most important, the largest amount of funding of the oil companies by way of buying their bonds is by Americans, which means the Americans are creditors of the Middle East nations.

Now, when you are mean told by the wise guys, that oil will go to 100, 125, 150, 200, 300, in some sporadic options contracts, you need to ask yourself which debtor will actually muster up the courage to tell the creditor, I need your military hardware, ammunition, medical aid, armed forces training, and a constant supply of money into my country, but hey, I'm will twist your arm behind your back and I'm gonna sell you what I have at, 1, 2, 3, and 5 times more than more than what it's worth. Try doing that.

So simplistic as it may sound, I still debunk the triple digit price. It might go there, like I always said it might go there and then fall back. It's been 8 to 9 months in some hearing 100, 120, 125 dollars a barrel WTI crude oil. For the last eight or nine months, the supercyclists haven't really convinced me. I still think in, 2022 oil prices are going to remain subdued.

Let's now come to a precious metals. What do I think about precious metals? I think anything between 15 to 20% of your total wealth that you are allocating in financial markets, should be in bullion. Between bullion, you have a silver and gold. If you can stomach the volatility, I think silver needs to be 60% and gold needs to be 40% of the basket that you've set aside for bullion.

If you're somebody who's a little more risk averse, maybe 40% in silver, 45% in silver, and 55 to 60% in gold, because silver happens to be more volatile.

Now, if oil prices are going to be lower, base metal prices are going to be lower, why my advocating bullion? Because hey, the dirtiest kind of inflation that mankind can ever be confronted with his food inflation. Why? Because food is inelastic where its demand is concerned.

I don't think people can say okay, I'm gonna stop consuming food or I'm gonna cut it down by 50% of 60% because I can do without it. I don't think that's happening. So people will actually spend on food and cut back on other things, which means that inflation will actually hit where in where its the most, in the stomach.

Let's rattle of some numbers, shall we? In the United States, inflation overall is hitting 48 year highs. In the eurozone, 13 year highs. In India CPI has hit three month highs. In Russia, inflation is galloping.

In Brazil, the world's most blessed country, large in size, much, much bigger than India, which grows everything from green vegetables to coffee, produces one of the largest quantities of alcohol, sugar, beetroot, etc, and it's rich in oil, gas, food inflation is jumping.

Argentina is actually clamping down on 1,400 items of day to day consumption and banning the export of beef so that food prices domestically can be curtailed.

The Russians are imposing an export tax on wheat. After America, Russia is one of the biggest swing exporters of wheat. Why swing? Because they can swing the market prices globally with their statements of whether they will or will not export. The Russians are very clear then, not keen on exporting wheat cheap.

So 2022 will see galloping food inflation. Rising food Inflation is always, always a conducive time for precious metals to appreciate. You may not see the kind of rally that you're seeing in midcap and smallcap and SME stocks in bullion, but that's not supposed to anyway. This is bullion. This is not a midcap stock.

So over a period of time, you're going to see gold and silver attract higher and higher levels. But this is for delivery based investors, not traders or speculators. We are talking about the longer term here and we're talking about delivery.

Friends, overall, I think the kind of volatility that we saw in 2020 and 2021 will not be repeated in commodity markets. It will be a lot quieter and not, I repeat, I'm not saying it's going to be a bear market. All I'm saying is that an average retail trader, who was put off by the wild movements in prices, will see a relatively quiet a market.

Therefore, it should be hypothetically an easier market to trade and therefore keeping my fingers crossed, a lot more profitable in 2022.

On this cheerful note, I'll bid goodbye to you my friends, not before reminding you to subscribe to my YouTube channel if you haven't already done so. Click on the bell icon to receive instant alerts about fresh videos being put up out here. Good bad, ugly, I welcome all your comments and help me reach out to fellow like-minded investors and traders by referring my videos to your family and friends.

I wish you have a very profitable day my friends. Thank you for your patience and watching my video. Till we meet again, this is Vijay Bhambwani signing off for now. Take care. Bye.