Samvat 2080: Gold prices are expected to rally further while silver may continue its outperformance over the yellow metal in the new Samvat year 2080, said Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. In the commodities market, Trivedi believes the fundamentals for precious metals like gold and silver are positive, while demand concerns may loom over base metals.
Edited Excerpts:
1) Gold prices have given over 20% returns since last Diwali. Do you think the correction is overdue or the bullion will continue to march ahead?
The fundamental background is supportive for another strong rally in the yellow metal. The uncertainty related to the geopolitical risk / war premium or the US elections is likely to be a major catalyst for an uptrend. Moreover the central bank buying is also a key trigger. We may see another rate hike by the US Fed, but next year H1 at least, the rates will stay higher and the dollar may weaken in the first half of the next year. Hence the outlook is positive. Having said that, we don’t deny the possibility of a minor correction but that would be an opportunity to go long.
2) Indian buyers seem to be reluctant to buy physical gold at a high price. What is your assessment of the current scenario?
Of course, the prices are high in India and footfall in the jewellery shops has gone down as compared to the same time last year. We shall see last minute festival time rise in demand but amid such high prices, buyers are reluctant to buy aggressively.
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3) Silver prices have outperformed the yellow metal. Do you see this outperformance to continue amid rising industrial demand?
Exactly, the major positive for silver is rise in the industrial demand. The use in 5G technology, green energy and Electric Vehicles (EV) is likely to drive the market up. Nonetheless, China is clearly struggling with an economic downturn, we expect the recovery in the manufacturing activity somewhere in H2 of next year. Not to mention, political uncertainty, weak dollar, buoyant atmosphere in the bullion space, all will provide a push to silver. We are of the opinion that silver may outperform next year too.
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4) Digital gold investment avenues like Gold Exchange Traded Funds (ETFs) and Sovereign Gold Bonds (SGBs) are seeing growing acceptance. This brings us to a golden debate – what is the best investment option – SGB, ETF or physical gold?
SGB, as it provides better tax efficiency, earns interest and has no maintenance cost. One can start with the smallest unit. Of course there is no upper limit in the ETF way but SGB is still the best option.
5) There is a race among global central banks to accumulate gold, the latest statistics from World Gold Council confirms the trend. What are your views on this and how do you interpret this trend? Can you throw a light on the pros and cons of the central bank accumulating gold?
Yes, correct. Central banks have bought a net 800 tonnes of gold YTD, the highest on record for that nine-month period. The reason behind it is, uncertainty related to rate cycle and geopolitical risk. It’s been more than 18 months since the Russia and Ukraine war and now we are witnessing a war between Israel and Palestine. To safeguard against rising global uncertainty, the central banks’ of developing countries have chosen to keep buying the gold. We believe the trend will continue among central bankers. We also believe that this may push prices even higher in coming sessions.
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