Samvat 2079: Gold and silver sparkle; crude oil on slippery slope

Samvat 2079 is ending on a high note for investors in precious metals with a 20 per cent rally in gold and silver during the last one year, following the geopolitical tension and depreciation in the rupee against major currencies.

However, it was a dull year for industrial commodities such as crude oil and base metals like copper, aluminium and zinc. Among industrial metals, zinc prices continued to fall.
 

In Samvat 2078, zinc prices at London Metal Exchange (LME) were down 11.3 per cent and the trend continued in Samvat 2079 — prices fell 13.3 per cent in the last one year. Similarly, lead prices are down 13 per cent in 2079.
 

However, base metals bellwether copper and aluminium found support in 2079 after falling by more than 20 per cent in the previous year.
 

The Ukraine-Russia war and rising interest rates in the US and other advanced and emerging economies have raised recession fears. It led to a fall in demand for industrial metals and poor demand for the near-and-medium term.
 

Sandeep Daga, founder and chief executive officer (CEO) of Metal Intelligence Centre, said, “The base metals began the year with the hope of a strong recovery in Chinese demand, especially from its property markets. This came after the country lifted its zero-Covid policy in December 2022. However, the stimulus failed to show the desired results. Moreover, manufacturing sectors weakened in the West and the global Purchasing Managers' Index (PMI) contracted for 14 consecutive months.”

The LME Index is down 17 per cent from its January 2023 peak. The bull-bear ratio fell from 1.64, at the start of the year, to 1.04.
 

According to Daga, copper fell after production in China rose by a higher-than-expected 17 per cent this year. This was to cater to a growing green energy demand, which more than offset the slowdown from the property sector.”
 

On the energy front, Samvat 2078 was a bull year as the war between Russia and Ukraine altered trade routes and supply equations resulted in a 12.5 per cent jump in the price of Brent crude last year.
 

However, recession fears in Western Europe, rising interest rates and a weakness in industrial production in Europe washed out the gains and Brent crude price is down by almost a similar amount in Samvat 2019.
 

Anuj Gupta, national head, commodities and currencies, HDFC Securities, said, “The energy basket has witnessed strong volatility. Saudi Arabia's voluntary production cut and other OPEC+ countries' lowered production plans were counterbalanced by the non-OPEC production. Aggressive monetary policy from western central bankers hit demand outlook. Additionally, demand from China also remains subdued.”
 

Despite the uncertainty in the crude oil market last Samvat, Anuj said, “Demand is anticipated to exceed supply due to active efforts by OPEC and its alliance. This is resulting in further constraints on the world’s oil supply. It is buy on the dip.”
 

Good year for bullion
 

The outgoing Samvat has been great for bullion investors with a 20 per cent plus rise in the prices of gold and silver. Those who invested in gold and silver during previous year’s Diwali have seen their investments go up around 21 and 26 per cent, respectively.
 

However, Chirag Sheth, principal consultant, Metal Focus, a London-headquartered precious metals research firm, said, “Gold has reacted to the developments in the last one year in the way it should. However, despite the good returns in Samvat 2079, we can’t say that precious metals are in a bull run.”
 

The last decade has been a mixed bag for buyers of gold and silver, most of whom accumulate precious metals on Akshaya Tritiya and Dhanteras.
 

In the last 10 Samvats, gold has delivered positive returns on six occasions while silver has been positive on five occasions.

In the last 12 months, gold prices in the international market ranged from a high of $2050 per ounce to low of $1629/oz.

The yellow metal has, however, been rallying since October, when the Israel-Palestine war started. It is currently trading at around $1,950/oz, compared to around $1,820/oz a year ago.
 

In India, gold touched a high of Rs 61,400 per 10 gm in May this year while silver touched Rs 77,280 per kg in July.

Highs were followed by a period of weakness and gold touched a low of Rs 49,862/10 gm while silver fell to Rs 55,555/kg, respectively, in October. Now, Gold is above Rs 60,000/10 gm while silver is trading above Rs 70,000/kg.
 

Several abnormal events took place last year. They include the Russia-Ukraine war, record increase in interest rates by US Fed, high inflation and unprecedented follow-up actions by global central banks. And now, another military conflict in West Asia is keeping gold prices alleviated amid the volatility.
 

Whenever the market sees that geopolitical tension is not escalating the way it was feared earlier, gold price moderates as we see now. In the international market, gold crossed $2,000/oz-level twice and fell by $200-400 from there and again went up.

Hence, “Volatility in bullion prices is here to stay and we will have to live with it,” said Sheth.