Gold and Silver prices surged: How far can it go?

Gold has rallied to seven months high amid rise in demand for safe haven

Precious metal started this year on positive note and is likely to continue with the trend. Gold and Silver has recovered most of its losses and moved towards $1,850 and $24 respectively, on fears that global economy will feel the repercussion of geopolitical crisis and global monetary policy tightening

Our Perspective:

Bullion look’s promising this year. There are 2 major factors supportive for precious metal to shine this year. (I) Pause in rate hike (II) Global economic slowdown.

Moderating inflation and looming recessionary fears may convince Fed to pause rate hike early this year and to even cut rates by the end of the year. Fed taking backseat should further weaken dollar and yields providing support to prices. US 10yr yields are declining after making biggest annual gain in decades last year and 2yr yield which moves typically with interest rate expectations are also tumbling. US 10yr yield stands around 3.70% and 2yr around 4.39%. US treasury yield curve, the gap between yields on 10-year and two-year treasury note inverted at -69 bps. An inverted yield curve is often seen as a red flag that a recession is looming.  Concerns over Global economic slowdown and ongoing geopolitical tension should improve the demand for safe haven. Global economy is likely to go through a difficult time as it will face the aftermath of Russia’s invasion of Ukraine, cost of living crisis and slowdown in major economies.

Gold:

We expect gold prices to rally till ₹62,000 on MCX and $2,000 on international market this year as global economic uncertainty will continue to make gold valuable as hedge against uncertainties. Global central banks had purchased approximately 400 tonnes of gold in Q3CY22 the largest single quarter of demand. Looking at the current situation, the central bank will continue to add gold to its reserves

Silver:

We expect Silver to outperform gold this year as the silver market is likely to remain in deficit for a second consecutive year. On top of it demand in industrial sector is likely to rise amid commitments to green infrastructure and electrification of vehicles. Apart from this investment demand is likely to continue amid recessionary fears. Silver prices may rally till ₹80,000 on MCX and $30 on international market this year

Source: ICICIdirect Research

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