Brokerage Motilal Oswal expects silver to outperform gold in the long term.
Recent Performance:
Click here to follow our WhatsApp channel
Both gold and silver have seen positive year-to-date growth as of May 2024.
Gold prices have increased by 13% since the last Akshaya Tritiya (a Hindu auspicious occasion that typically marks the beginning of a new financial year for precious metals).
Silver prices have increased by 11% during the same period.
MOFSL’s Investment Recommendation:
MOFSL maintains a positive outlook for both gold and silver.
They recommend buying gold and silver on price dips (when prices go down).
Their target prices are:
Domestic: Rs 75,000 for gold and Rs 1,00,000 for silver
Comex (a commodities exchange): $2450 for gold and $34 for silver
Gold and Silver Returns (Rs) in 2024
“Both gold and silver have registered a positive advance in Q1’24, matching or even surpassing gains in other significant asset classes. In Q1’24 MOFSL has achieved the annual target for Gold and met more than 85% of annual target on Silver, “the brokerage said in a note.
In the past, supply and demand issues have not had a significant effect on gold prices, particularly when the market is experiencing more extreme uncertainty. Given the recent, strong increase in gold prices, some cool off in price cannot completely ruled out.
Positive factors (tailwinds):
Lower economic data: A weaker economy can lead investors to seek safe-haven assets like gold.
Growth concerns: Similar to weak economic data, if people are worried about the economy slowing down, they might invest in gold.
Higher rate cut expectations: If interest rates are expected to decrease, it can make gold a more attractive investment compared to interest-bearing bonds.
Geopolitical tensions: Uncertainties arising from international conflicts can drive investors towards gold.
Rising debt concerns: If government or corporate debt is on the rise, it can increase demand for gold as a hedge against inflation.
Increased demand: A general rise in demand for gold, due to factors like increased jewelry consumption, can push prices up.
Falling US Yields: The yield is the return an investor gets from holding a bond. If US bond yields go down, it can make gold more attractive relative to bonds.
Negative factors (headwinds):
Election year volatility: Historically, gold prices tend to be more volatile during election years. With over 40 countries having elections in 2024, this could create uncertainty.
Discounted future events: Investors might already be factoring in positive events like a potential rate cut, so the current impact on prices might be muted.
Black swan events: Unforeseen events with significant economic impact can be difficult to predict and could cause gold prices to fluctuate.
However, there are more positive factors likely to influence gold prices in 2024.
Gold’s move until now
It is the year of safe haven assets, especially gold and silver who have seen a fantastic rally since the start of this year.
Two main factors triggering volatility in bullion market:
1) Geo-political tensions – Russia / Ukraine, Israel/Hamas, Israel/Iran and other geopolitical triggers, increase risk premium for safe haven prices
2) Fed monetary policy: Market expectations and Fed’s actions regarding interest rate cut this year has been keeping market on the edge
The rate of central banks purchasing gold did not slowdown in Q1, according to recent WGC reports, with 290 tonne being added to official holdings. While demand for bars and coins increased by 3% year over year to 312t, it decreased by 2% year over year to 479t for jewelry worldwide. Central banks, led by Turkey, China, and India, increased their demand for gold by a record amount in the first quarter. The most surprising factor for 2024 has been the imports of Gold and Silver. Since the start of the year, imports have been to tune of more than 150 tonnes and 3000 tonnes respectively. This jump in imports could be on the back of CEPA deal with UAE under the benefit of 1% TRQ or the import duty benefit that the market participants get under other bullions articles like granules or findings.
Gold returns in the last 15 years
Comparing gold returns over the last 15 years for Akshaya Tritiya, gold is delivered at 10% CAGR. There have been instances of some price correction, but overall rise in prices have been consistent and steady, noted Motilal Oswal.
Gold (₹) Price and Reutrns(%) over last 15 Years on Akshaya Tritiya
Where should you invest?
There are several platforms for market participants to invest in gold based on their risk profile. “From a longer-term horizon, it is advised to invest in SGB, which will help to capitalize the price rise in gold and an additional 2.5% interest each year to the investors. Several other modes to invest could be in the form of ETF, which are now a very popular way of investments, exchange traded derivatives, Digital Gold and Physical bars and coins,” said the brokerage.
