Retaining sheen: Gold, silver may continue to sparkle next financial year

What is worth observing for the Indian market is that since the last nine years, gold investors have made money each year, while in silver, gains have been consistent only in the last five years

It has been a profitable year for investors of gold and silver. However, both the metals, in line with their demand, have seen varying degrees of price rise.

In the international market, gold price returned over 13.2 per cent and silver was marginally up 3.6 per cent.

The situation in the Indian market was not too different. Domestic gold and silver prices were up 12.6 per cent and 3.6 per cent, respectively.

Since the last nine years, gold investors have made money each year, while in silver, gains have been consistent only in the last five years.

Another notable point in the international market in FY24 is that both gold and bitcoin rallied simultaneously. Bitcoin and gold appeal to distinct categories of investors.

Gold appeals to conservative and older investors. Bitcoin appeals to younger investors who are trying to speculate.

Nigam Arora, author of Arora report, said, “The prime reason for the up move in gold and bitcoin was the expectation of six rate cuts in 2024 by the Federal Reserve (Fed). Both gold and bitcoin become more attractive when interest rates are lower. Due to a resilient economy, rate cut expectations have been reduced to three rate cuts in 2024. However, the momentum has continued to carry bitcoin and gold higher.”

The reason for faster rise in silver from the lower levels is that it has higher beta than gold, which results in sharper swings either side compared to gold. Hence, the price of silver has been 10 per cent higher from the low levels.

“In India, silver prices are hovering around their all-time high of Rs 74,000 per kg. At higher price levels and pressure of lower duty import under Comprehensive Economic Partnership Agreement (CEPA), the domestic silver market has slipped into discount, which is $1 compared to international prices,” said Viraj Didwania, founder director at Foresight Bullion, one of the largest silver trading firms.

CEPA is an economic agreement between India and the United Arab Emirates (UAE) under which silver imports attract 9 per cent Customs duty compared to 15 per cent for regular imports.

Didwania estimates that 900 tonnes of silver have been imported under CEPA out of the 6,000 tonnes imported in FY24.

According to Nigam Arora, gold will be driven primarily by technical factors. He said, “If gold does not decisively break above the current level of $2,225 an ounce, it may witness a pull back. On the other hand, if gold breaks above $2,225, it has the potential to reach $2,500.”

Outlook in the near term may not be good for silver, according to Didwania. High discount is impacting demand and is affecting imports as well, he added.

Gold and silver usually act in tandem but that relationship has not held this time. The reason is that gold is a currency substitute, whereas silver is not. Silver also has many industrial uses where demand has not been strong.