Gold, silver prices set to increase amid global economic pressures: Report

Gold seen as stabilising force in diversified portfolios, especially during periods of low equity returns

Gold and silver prices are anticipated to increase sharply, driven by a mix of economic trends and geopolitical uncertainties and as India celebrates Dhanteras. Both metals are positioned as safe-haven assets and their prices are expected to appreciate further, according to a report by Ventura Securities. Gold is now acting as a hedge against inflation and economic sanctions by the United States (US), it said.

 

Market outlook: Gold

 

For gold, the report indicates a potential rise to Rs 79,000-85,700 per 10 gram, with strong support at Rs 77,000. On the Comex, gold prices are targeting levels between $2,760 and $3,000 per ounce, supported at $2,650. Despite moderated inflation, gold’s trajectory remains bullish in the long term, even as short-term gains could decelerate due to the slow pace of interest rate cuts. A ‘buy on dips’ approach is recommended by experts for MCX futures to capitalise on the current market conditions, according to Ventura Securities.

 

Market outlook: Silver

Silver is also poised for significant gains. On the domestic front, prices may surge to between Rs 106,000 and Rs 120,000 per kg, with support at Rs 95,500. In the international market, Comex silver is aiming for targets of $35 to $40 per ounce, backed by support at $32.90. Silver has risen 41 per cent year-to-date, scaling to a 12-year peak, and its upward momentum shows no signs of slowing.

 

Key drivers and market catalysts

 

Ventura Securities lists reasons for gold and silver rising:

 

Rising fiscal pressure in the US: The national debt is projected to reach historic highs over the next three years, with interest payments likely to grow as a percentage of GDP. If markets face challenges in absorbing increased debt issuance, market volatility may rise, boosting gold's appeal as a stable asset.

 

Geopolitical tensions: Uncertainty surrounding conflicts in the Middle East has increased gold's attractiveness as a safe haven.

 

Central bank diversification: Central banks continue to diversify their currency reserves, increasing their gold holdings significantly over the past decade from 3 per cent to 10 per cent of total reserves. In 2023 alone, global central banks purchased roughly 800 tonnes of gold in the first three quarters, with top buyers being China, Poland, and Singapore.

 

Federal reserve monetary policy: The upcoming Federal Open Market Committee meeting on November 7 may signal expected rate cuts. While the dollar is currently gaining strength, this divergence may shift as the Bank of England and the European Central Bank are anticipated to cut rates faster than the Fed, with the Bank of Canada possibly following suit.

 

US election: Uncertainty surrounding the election adds to gold's appeal.

 

Silver demand: Silver’s demand is projected to outpace supply, with a forecasted 215-million-ounce supply deficit by 2024. The metal's demand is expected to grow in military applications, renewable energy (photovoltaic panels), and electric vehicles. Additionally, China’s national solar grid initiative and India's renewable energy investment are expected to drive demand further.

 

Historical performance and investment trends

Gold futures remain near record highs of around 80,000, trading around Rs 78,900 and gaining over 34 per cent this year. Silver, likewise, has rewarded investors with its rally. Historical data shows that gold has consistently acted as a stabilising force in diversified portfolios, especially during periods of low equity returns. Way back in 2014 Gold was ranging Rs 27000 or $1200, showing remarkable resilience and  appreciation. A compounded annual growth rate (CAGR) of 7 per cent to 9 per cent

 

Investment opportunities: Sovereign Gold Bonds (SGBs) and ETFs

 

Sovereign Gold Bonds (SGBs) trade at a premium, offering a 2.5 per cent guaranteed annual return. However, liquidity constraints may present challenges for investors seeking flexibility, making ETFs or gold mutual funds attractive alternatives due to their higher liquidity. Gold is also widely recommended as a tactical 10-12 per cent portfolio allocation to counteract stock market volatility.