Analysts say robust demand from central banks could provide additional support for the precious metals
Gold and silver are expected to continue to shine in the coming year, considering the elevated interest rates, which have already been putting pressure on the US economy. The price of gold has jumped 10.47 per cent to Rs 56,446 per 10 grams in the last one year till October 4, 2023. On the other hand, silver has climbed nearly 11 per cent to Rs 67,177 per kg. There are expectations that robust demand from central banks provides additional support for the precious metals market.
In the first six months of 2023, central banks across the world bought 387 tones of gold, the highest first-half tally since 2000. So, is it the right time to buy gold ahead of the festive and wedding season in India?
Vandana Bharti, AVP, Commodity Research, SMC Global Securities, said, “It is reasonable to anticipate gold prices reaching around Rs 62,000 and silver prices reaching around Rs 78,000 in the next 12 months.”
Naveen Mathur, Director-Commodities and Currencies at Anand Rathi Shares and Stock Brokers, said, “We see gold testing new all-time highs in the next one year to around Rs 65,000-68,000 per 10 gm levels in MCX futures contract. On the other hand, silver prices have been supported by continued deficit concerns. The white metal is expected to test Rs 85,000-87,000 per kg in the next 1-2 years perspective.”
Mathur added that continued central bank demand, with developing nations looking to diversify from the dollar by increasing gold reserves, and ETF demand that is likely to pick up in the first half of 2024 as the slowdown in global growth persists are some factors that may drive prices higher next year.
He said that hedge funds could reposition towards the start of the year, driving safe-haven demand in precious metals in 2024. “The Dollar Index [could] face renewed pressure on slowing economic growth, supporting sentiment in precious metals,” he said, adding that a fall in treasury yields amid declining equities would drive fund inflows towards precious metals.
“Our primary focus should also be on the actions taken by the US Federal Reserve concerning interest rates and the bond market. The timing of their decision whether it is an early interest rate cut or otherwise, will have a direct impact on the trajectory of the bullion market,” Mathur said.
Additionally, the impact of ETF demand cannot be underestimated. Significant changes in ETF investments can exert substantial pressure on gold prices. Over the past few years, there has been a consistent trend of outflows from ETFs. If this trend reverses and ETF buying improves, it will likely stimulate increased buying activity in the gold market.
“Interestingly, gold has been showing a stronger correlation with the performance of the equity market at times, occasionally disregarding more traditional triggers such as geopolitical tensions and seasonal demand. Should there be a pause or downturn in the equity market’s rally, gold could become an attractive safe haven asset for investors,” Bharti said.
“Deficit concerns persisting in silver since 2021 to continue to drive prices higher,” Mathur said.
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