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The precious metals market has witnessed an extraordinary surge, with both gold and silver prices reaching unprecedented heights. Gold prices soared to an all-time high, breaking the key $3,000 mark, while silver also reached a historic high in the domestic market, breaching Rs 1 lakh last week.
This rally in gold and silver, which saw both metals gain more than 3% last week, has been attributed to a combination of global trade concerns, softening inflation data, and expectations of interest rate cuts by the Federal Reserve.
Brokerage Motilal Oswal Financial Services(MOFSL) has urged investors to adopt a ‘buy on dips’ strategy for both gold and silver, highlighting the potential for further gains despite the recent surge.
Factors driving the rally
Several factors have contributed to the surge in precious metal prices.
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A significant drop in the U.S. dollar index, which saw its largest weekly decline since the pandemic, has supported the rally. The decline in the dollar’s strength was further exacerbated by the German fiscal stimulus package, expected to boost the Eurozone’s economic recovery and reduce the relative strength of the U.S. dollar.
Geopolitical tensions, particularly trade disputes between the U.S. and Europe, have also added volatility to the markets. US President Donald Trump’s threat to impose tariffs of up to 200% on European alcoholic beverages, in retaliation for the European Union’s tariff on American whiskey, further escalated uncertainty in the global markets. These tensions have prompted investors to seek safe-haven assets like gold and silver.
Impact of US Economic Data
In addition to geopolitical concerns, softer-than-expected U.S. inflation data has further supported the precious metals market. U.S. inflation fell to 2.8% in February, below the expected 2.9%, which has fueled speculation that the Federal Reserve may soon cut interest rates to support the economy. This, combined with weaker-than-expected job creation figures in February, has increased concerns over U.S. economic growth, leading investors to hedge their portfolios with gold and silver.
China’s influence:
Meanwhile, China's gold market has seen strong growth, with record inflows into gold exchange-traded funds (ETFs) in February. The improving economic conditions in China are expected to boost jewelry demand, further supporting the bullish sentiment in the gold market.
Outlook and recommendation
Despite the sharp rally in gold and silver prices, MOFSL maintains a positive outlook for the metals, recommending that investors continue with a ‘buy on dips’ strategy. The firm predicts that while both gold and silver may experience some consolidation in the short term, the overall trend remains bullish.
