)
After dropping a little over 30 per cent in 2013, gold and silver will likely see further downsides this year. For, the prospect of a stronger dollar because of the US central bank’s tapering of its stimulus programme could reduce appetite for these.
Analysts said crude oil was unlikely to decline much. Industrial commodities such as copper, aluminum, zinc and steel could drop once the stimulus rollback starts but could strengthen later, once the US economy picks up.
The US Federal Reserve is to reduce its monthly bond buying programme, known as Quantitative Easing (QE), by $10 billion a month, to $75 bn from Monday. This indicates a recovery in the US economy which might strengthen the dollar and result in increased investment in US treasury bonds. A stronger dollar is expected to reduce bullion’s appeal as a safe-haven investment. “When QE3 tapering will start and if the Fed announces further tapering we might see a fall in safe commodities such as gold and silver,” said Ashok Mittal, chief executive, Emkay Commotrade. Lower inflation can also dent the appetite for gold, a traditional hedge against higher prices.
Sugandha Sachdeva, in charge of metals, energy & currency research at Religare Securities, believes contrary to the market expectations, gold prices did not take a significant beating as the Street had already factored in this modest amount of tapering by the Fed.
Crude oil prices, strong for most of 2013, are likely to move in line with the demand-supply situation. Analysts do not rule out some speculative investment moving out of the commodity. According to the International Energy Association, crude might trade lower due to rising production from the US, expected to overtake Saudi Arabia as the world’s largest energy producer in 2016.
Industrial commodities are expected to weaken, tracing the possible drop in gold. These could rebound if the US economy’s recovery results in a revival of activity.
Some analysts warn against the possibility of the Fed increasing the extent of the rollback. “If it decides on QE tapering of another $10-20 bn in coming meetings, it will create a panic situation in global markets and people will move towards safer assets and low yielding currency, which will eventually lead to rise in demand for the currency,” said Naveen Mathur, associate director (commodities and currencies), Angel Broking.
The tapering might also spark some weakness in base metals and energy packs in the immediate term. The impact, however, is expected to be short-lived.
