Gold: The fundamental catalyst still supports another rally in Vikram Samvat 2080

By Jigar Trivedi

Gold prices have given over 20% returns since last Diwali. The fundamental background is supportive for another strong rally in the yellow metal. The uncertainty related to the geo political risk / war premium or the US elections is likely to be a major Catalyst for an up trend. Moreover the central bank buying is also a key trigger. We may see another rate hike by the US Fed, but next year H1 at least, the rates will stay higher and the dollar may weaken in the first half of the next year. Hence the outlook is positive. Having said that, we don’t deny the possibility of a minor correction but that would be an opportunity to go long.

Also, India’s buyers seem to be reluctant to buy physical gold at a high price.

Silver prices have outperformed the yellow metal. We see this outperformance to continue amid rising industrial demand. the major positive for silver is rise in the industrial demand. The use in 5G technology, green energy and EV is likely to drive the market up. Nonetheless, China is clearly struggling with an economic downturn, we expect the recovery in the manufacturing activity somewhere in H2 of next year. Not to mention, political uncertainty, weak dollar, buoyant atmosphere in the bullion space all will provide a push to silver. We are of the opinion that silver may outperform next year too.

There is a race among global central banks to accumulate gold, the latest statistics from the World Gold Council confirms the trend. Central banks have bought a net 800 tonnes of gold YTD, the highest on record for that nine-month period. The reason behind it is, uncertainty related to rate cycle and Geopolitical risk. It’s been more than 18 months for the Russia and Ukraine war and now we are witnessing a war between Israel and Palestine.

To safeguard against rising global uncertainty, the central banks of developing countries’ have chosen to keep buying the gold. We believe the trend will continue among central bankers. We also believe that this may push prices even higher in coming sessions. The range on the MCX is going to be difficult to predict still , Rs. 56,000/10 gram is support and we don’t reject a drop in the short term but that would be a buying opportunity and a new high could be seen in Vikram Samvat 2080.

(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities at Reliance Securities Limited. Views expressed are the author’s own.)