With the focus shifting to riskier assets like equities, precious metals like gold and silver have lost some sheen. C P Krishnan, wholetime director, Geojit Comtrade, tells Puneet Wadhwa that on the domestic front, physical buying and currency volatility would be the key factors determining gold prices. From a long-term perspective, however, it is the right time to buy the yellow metal, he says. Edited excerpts:
What is your assessment of the statements coming from the US Federal Reserve and China? What are the implications for the commodity space, especially the precious metals? Have the current prices factored in the worst?
The recent developments from the US and China has reduced gold's safe haven appeal pushing prices below the psychological mark of $1,300 an ounce. The US Fed Reserve Chair commented that the US central bank was bullish on US economic outlook and hence might raise the interest rates by the first half of 2015. Easing economic uncertainties will reduce the demand for bullion. Also, rumours about possible changes in Chinese monetary policy following a series of weak economic releases also influenced bullion. As a top consumer of the metal, contraction in physical demand, perhaps result in a decline in prices.
Do you think that the risk-off trade in equity markets in the second half of 2014 can see investors flock to safe-haven assets like gold and silver?
A sudden shift from equities to gold is not anticipated as the current fundamentals of gold are still bleak. However, the imminent general election in the country and concerns over a stable government may influence both equities and bullion later.
How do you see the demand scenario for precious metals shaping up over the next six-12 months? What are the factors that are likely to impact demand?
In a short run, precious metals are most likely to be held under a tight range with mild negative bias. Demand for this metal in this period may be on the weak side, as the top consumers China and India remain silent. Reports on the US and Chinese economic conditions, physical demand from India and China, central bank buying and global political uncertainties would influence prices in the near term.
What are the key domestic factors that can impact the prices of gold and silver positively and negatively over the next six-12 months?
On the domestic front, physical buying and currency volatility would be the key factors determining gold prices. Apart from that, import and export policies of the government and imposing or withholding of any duties or levies also sway prices domestically.
Should one buy these two precious metals at the current levels from a 12-18 month horizon? What is the likely price appreciation/ depreciation one can see from the current levels?
The ideal investment strategy for gold will be buying on every corrections/dips. Since gold has corrected more than 32 per cent in international market, from its all time high of $1290, the current price levels can be treated as a safe point to acquire positions for a long-term basis.
