MUMBAI: Precious metals are on a song again and are heading for their best annual returns since 1979, scaling new peaks globally and also in the domestic markets on safe haven demand and expectations of more rate cuts by the US Fed as inflation remains under control on one hand and on the other, the world’s largest economy is on a solid footing with the Q3 data at 4.3% surprising on the upsides by a wide margin coupled with the rising tension between the US and Venezuela.
Global instability arising from the Iranian revolution had pushed gold prices dramatically in 1979, from around $250/ounce (28.35 grams) from the start of the year to over $650 by December. Indian prices had then touched (for 24K) Rs 937/10 grams from around Rs 685 in 1978—or an exceptional 74%.
So far gold has soared over 70% in dollar terms to $4,550 per ounce and silver cross $72 (up 150%), fueled by anticipation of further Fed easing and fresh geopolitical tension arising between the US and Venezuela, where the US has blockaded oil tankers, adding to the metals’ haven appeal as they head for its best annual performance since 1979.
Given the sharp fall in the rupee, in rupee terms both these metals have rallied much higher than the 1979 rally with gold scaling past 85% and the while metal jumping over 150%.
The global rally where gold has crossed the sensitive $4,500 mark with wide margin scaling past $4,550 per ounce (28.35 grams), and silver crossing $72 an ounce has the gold futures with February expiry on the Multi Commodity Exchange hitting a fresh lifetime high of Rs 1,38,676/10 grams on Wednesday. The futures with April and June expiries are also at a fresh all-time highs of Rs 1,42,125/10 grams and Rs 1,45,579/10 grams earlier today.
Similarly, silver has crossed the Rs 2,20,000 mark and was trading at Rs 2,23,304 per kg today.
In the physical market, 24K gold quoted at a new record of Rs 1,36,150/10 g, up Rs 1,970, while silver jumped Rs 5,000 to Rs 2,31,000/kg.
"Gold prices are skyrocketing as the US Fed keeps pumping liquidity. Another reason is the continuing aggressive central banks buying worried that higher Japanese interest rates could roil the US economy. Silver is rising as paper silver short sellers are converting to physical gold," according to Surendra Mehta, national secretary of Indian Bullion & Jewellers Association.
Meanwhile, the sudden spurt in the prices-- after the third week of October these metals have cooled off till the ongoing spurt—has had the share prices of leading gold loan focused non-banks soaring over 6% Wednesday reaching their532-week highs.
While Manappuram Finance jumped 6% to hit a fresh 52-week high of Rs 313.8, IIFL Finance rose 4% to a 52-week high of Rs 597.70 and the industry leader Muthoot Finance rose over 2% to hit a fresh 52-week high of Rs 3,890.
Rising gold prices are good for gold financiers as higher prices increase the value of the collateral, reducing the risk of defaults, as the collateral becomes more valuable relative to the loan amount (which is capped at 75% of the price of the metal) issued against it.
Axis Securities attributed the sudden rally to the geopolitical friction between the US and Venezuela after the US blockaded oil tankers, adding to these metals’ safe haven appeal as they head for its best annual performance since 1979.
Spot gold soared as rising geopolitical risks boosted safe-haven demand. “The US deployed a significant number of special operations aircraft, troops, and equipment to the Caribbean this week, expanding Washington’s broader military options regarding Venezuela. This development are keeping investors cautious and supportive of bullion prices,” said Axis Securities.
Traders are also betting the US Fed will cut interest rates further in the upcoming year, which would be a tailwind for non-yielding precious metals. This is because the US economy has surprised on the upside delivering a sold 4.3% growth in the third quarter, a two-year high and despite the massive import duty hikes inflation remain benign.
As predicted earlier, gold has crossed the target resistance of $4,500 (Rs 138,000/10g) crossing $4,550. The metal has been consolidating for the past two months since its previous peak of $4482, and was trading between $3,935 and $4,400/oz. So this rally is expected to extend further towards $4,575 (Rs 1,40,000) and $5000(Rs 1,50,000) in a few weeks,” Renisha Chainani, head of research at Augmont, told TNIE.
She sees the international gold support level at $4,370/oz and resistance of $4,575/oz while the same for the domestic markets is respectively at Rs 1,35,000/10 gm and Rs 1,40,000/10 gm/
Similarly, silver has also crossed the second target resistance of $72 (Rs 2,23,000/kg) and she sees the international support level for silver at $67.5/oz and resistance at $75/oz while the domestic support is seen at Rs 2,09,000/kg and resistance at Rs 2,35,000/kg.
However, she was quick to add that “it's time to book profits, as the silver rally seems overdone. We can see a price retracement to $68/oz (Rs 2,10,000/kg). But, if silver continues its bullish momentum, the next target is $75 (Rs 2,35,000).