“With fundamentals suggesting lower rates and higher anticipated inflation numbers, gold and silver prices may start their up trend again, attracting attention towards precious metals,” Sunil Kumar Katke, Head – Commodity and Currency, Axis Securities, told ETMarkets.com.
Last year, gold delivered a return of 45 per cent. Gold prices have declined by 25 per cent now from its peak of Rs 56,191 reached last year. The yellow metal is hovering around Rs 46,900-47,000 per 10 gram, implying a fall of Rs 9,300. Similarly, silver has plunged up to 15 per cent from the peak of Rs 77,950 to Rs 68,800-69,000.
Analysts believe that investors are now likely to shift from equities to bullion markets for the sake of safety. Weakened dollar and cooling off of US bond yields may also boost gold prices globally.
Kshitij Purohit of CapitalVia Global Research said, “Last year, gold and silver moved very strongly and made all-time highs. The market has been consolidating since the last three months. Overall, both metals are looking strong now.”
Factors like exceedingly strong reports on US GDP and the government’s plan to spend on infrastructure have sparked a strong rally across industrial metals and created pressure on precious metals.
“This year, gold has given a negative return of about 6 per cent due to expectations of global recovery and strength in dollar and US bond yields,” said Anuj Gupta, Vice President – Commodity and Currencies, IIFL Securities. “However, purchases by the central bank and demand for gold ETFs, digital gold and Sovereign Gold Bonds are increasing substantially.”
Market watchers said vaccination drive and a strong rebound of global economies along with ultra low rates has diminished the appeal of safer bets.
Profit booking in the equity market is a positive sign for precious metals. “Investment demand and portfolio diversification may increase demand for gold. Investors are betting on gold due to the uncertainty and risk of inflation,” Gupta said.
Precious metals are usually treated as a diversification tool in one’s portfolio. Analysts suggest investors should accumulate gold and silver in a staggered manner. Precious metals are witnessing inflows from institutional buyers and central banks, claim analysts.
“Prices have almost bottomed out and the fundamentals look strong in the near term. We recommend a buy for both the precious metals with a target of Rs 53,000 for gold and Rs 78,000 for silver by the year end,” said Katke of Axis Securities.
Silver appears to be scoring over gold. Given the industrial demand the rally in base metals, Gupta expects silver to outperform gold this year. He expects the white metal to test levels of Rs 80,000-85,000 by the year end. Kshitij Purohit of Capitalvia is also more bullish on silver.