Gentlemen, it seems, no longer prefer bonds. Bars and coins are the preferred shapes now. Gold and silver, to a greater extent, are emerging the preferred asset classes. Despite their outperformance in the near term — both precious metals are currently trading at multi-year highs — analysts continue to be bullish.
Gold touched $1,500 per troy ounce for the first time in history. In Indian markets, the yellow metal closed at Rs 21,720 per 10 grams on Wednesday. Silver is also trading at an all-time high and closed at Rs 67,180 per kg, shattering three-year price targets set by some analysts in three months.
Analysts feel both metals will continue to rally and outperform other asset classes as investor sentiments continue to be strongly against paper assets. Paper assets, both debt and equity, are fast losing favour as investors look for a safe haven amidst growing macroeconomic concerns such as rising crude prices, high inflation and the European debt crisis.
Vijay Bhambwani, CEO, BSPLIndia.com, said safe-haven buying will continue to drive the bullion rally. “Most investors are wary of paper assets, given the amount of bad news,” he said.
The rising crude oil prices have cast a shadow on the global markets. Analysts expect the ongoing struggle in Libya to keep crude prices high. This, in turn, puts pressure on the dollar. Gold and silver have become natural hedges for investors seeking safety against a falling dollar.
The recent S&P outlook on US debt and the crisis escalating in the euro zone, with fresh trouble in Portugal, are other key factors driving the bullion rally.
A note by IIFL commodity analysts said: “Worries about the euro zone along with the ones coming from inflation and the US debt are boosting the safe haven appeal of the metal.”
According to the note, gold has now entered uncharted territory and will look for fresh triggers. However, silver continues to hold momentum, say analysts. Spot silver prices in international markets rose to $44, a level unseen since 1980.
IIFL analysts said, “Above Rs 63,650, look for a rally to extend to the 65,050/65,300 levels. Only a fall below 63,650 could drag prices sharply lower.” Bhambwani said, “In the absolute near term, silver will have more momentum than gold. Gold may outperform once silver reaches the level of Rs 72,000.”
According to him, gold is now a long-term investment. “It could touch Rs 23,500 to Rs 24,000 in the next 18 months.”
Not only bigger players, even retail investors have started to buy bullion. “Retail demand has picked up in silver especially since Diwali, when the stock markets turned topsy turvy... People are buying bars. E-silver is seeing rising volumes but its yet to gain widespread acceptance,” Bhambwani added.
However, fund managers warn that investors need to be careful of hot money getting into these commodities. A senior fund manager with a local fund house said the rally was being driven by excess liquidity in the system. “A lot of liquidity is floating around in the system. It is finding its way to gold and silver. Not only gold and silver, even some other assets like crude and emerging market equities are at their all-time highs.”
Secondly, the rally in precious metals also implied falling value of printed currency, the fund manager added. “Central banks around the world are trying to print their way out of trouble. It (the rally in metals) is a reflection of the structural issues in the global economy and how there is a deterioration in the overall health of the sovereign debt market.”
