Gold can hit $5500 by year-end; invest in a staggered manner: MOFSL

Even if silver performs, we believe the weightage for gold could be higher in one's portfolio, said Manav Modi of MOFSL.

Gold and silver prices are languishing amid inflation headwinds. However, Motilal Oswal Financial Services' (MOFSL) commodity analyst Manav Modi sees an uptick in the year ahead amid a pick-up in demand due to festive buying. Not just precious metals, Navneet Damani, head of research - commodities, at MOFSL, also makes a case for investing in industrial metals like copper and zinc in this interaction with Saloni Goel. Edited excerpts:

 

Where do you see gold headed in the next 3-6 months, and why? What are your year-end targets? 

Manav Modi: The last couple of months have been very volatile for gold. And this pain could continue for the next one-two months till we have clarity on the US-Iran tensions or the interest rate trajectory. For now, gold prices could consolidate in $4,000-$4,500, but once the demand picks up close to the festive season, we could see some rebound to a high of $5,500-$5,600 towards the end of the year.

 

Silver is getting its support from the rebound of industrial metals. Even though there is a big fall in gold, some of the losses are capped in the industrial metal trade. 

Manav Modi: To be level specific, $55 is a strong base for silver, just like $4,000 is for gold. If these levels are broken, we could be open for $3,800-$3,700 for gold and $52 for silver. And if these are not broken in the next one-two months, we could see a rebound till $65 on an immediate basis and $75-$85 on a medium-to-long term basis for silver, and $4,500 on an immediate basis for gold, and $5,500-$5,600 on a longer basis.  Also Read | India's gold tariff hike boosts grey market: WGC

 

Is it wise to consider buying gold now or should investors wait in case of further correction? 

Manav Modi: First, let’s look at the negatives. Since February, not only the domestic but also the global ETF share has dropped for both gold and silver. Global SPDR shares are also falling. CFTC positions have been on the sidelines. No major speculative buying or selling is seen.

 

Among the macro factors, interest rates remain a key mover. Currently, it’s a chain of cycles --- if the US-Iran war escalates and continues, it could keep oil prices elevated, which in turn would drive inflation expectations, and that could keep the interest rate hike factors in check. We are also yet to see the tariff inflation impact. So, inflationary expectations are a major headwind for gold. If US-Iran war tensions subside, bulls will once again be in charge. However, the demand has to follow. We are at a big discount on the domestic front as well. If that also doesn't pick up, we could see some bit of a capping.

 

For a long-term-based investor, investing in an SIP manner is advisable because the risk-reward for gold currently is quite favourable.

 

Gold vs silver is an eternal debate. While both are precious metals, their uses are quite diverse. What would be an ideal allocation for a long-term investor?   

Manav Modi: We've been very heavy on silver in the past two-three years. But now this year, we've changed our stance and are heavy on gold after a sharp rally in silver prices. Even if silver performs, we believe the weightage for gold could be higher in one’s portfolio. Allocate 60-70 per cent to gold and 30-40 per cent to silver.  Also Read | India's gold demand falls 6% in April-June

 

The intensity of the rise in crude oil prices despite the Middle East conflict has been mild. Analysts had predicted a spike to $150-200 levels as the war enters its fifth month. What could explain this trend? 

Navneet Damani: I wouldn't say the price didn't move; it was a 50-60 per cent upmove.

 

But unlike last time, the demand has not been extremely robust. And secondly, the supply has eased out to a very large extent. The supply flow coming out of the Middle East, the US, and other parts of the world is not facing any stress except for the Israel-Hamas war. Additionally, production has not been a concern.

 

On the other end, EV adoption has been massive, which is bringing down energy consumption across the globe, and the demand-supply mismatch hasn't been as grave or tight as it has been over the past many years.

 

Any kind of production loss or a blockage from year on will eventually lead to a spike in prices, which is what we are seeing on an ad hoc basis. About 10 days back, the reiteration of the war after the peace treaty sent oil 30-35 per cent higher. And then again, they called it a truce, and prices came crashing down by about 15 per cent. Such narratives will keep swinging the market.

 

However, we believe that the risk premium for oil prices will be built for months and quarters together from here on. The world will not be the same as it was pre-US-Iran war. About a $10 risk premium will always get built into the prices.

 

We expect $70 could be a base case bottom scenario for crude oil prices. And on the higher side, $110-120 per barrel is likely.  Also Read | West Asia risks will dictate crude oil price discovery

 

Both these nations’ economies are largely dependent on oil as a commodity, and they would not want lower crude oil prices. Also, they wouldn’t want abnormally high crude oil prices, too, because then it leads to higher inflation and higher interest rates, and the entire narrative changes.

 

So, whenever the prices go significantly lower, you will see some of these participants doing some mischief. And when they go high, they will call it a truce, and this is going to be the new norm.

 

Base metals have remained strong this year. Can this uptrend continue or will declining global growth curtail demand? 

Navneet Damani: From a base metal standpoint, we believe there is a lot of underinvestment in copper. A lot of demand has come out of data centres, AI, 5G, and solar, among other things. Therefore, the narrative for copper is extremely strong. However, a significant run-up will take some time, but a gradual positive momentum has already started and will continue over the next one-two years.

 

For zinc, we've seen a reasonable upside, and half of the rally is already built into the price. And the other half will start as we approach the second half of the year. We see zinc comfortably trading closer to $4,100 over the next six months. Any significant correction could be a buying opportunity both in zinc, as well as in copper.

 

Coming to aluminium, we've seen two mega swings. In the first quarter, it rallied 30-35 per cent. In the second quarter, it corrected by about 20 per cent from the peak. Prices have started to bottom out and form a base. It should start a consolidation phase anytime soon. And once the energy prices start to rise or the demand scenario normalises, aluminium prices will also start to see a significant upside.

 

I remain positive on all these three metals.

 

What do the rising US bond yields and dollar mean for the commodities market? 

Navneet Damani: Typically, when bond yields and the dollar index tend to rise, it becomes a negative for base metals and precious metals. This is because US bonds are one of the safest papers in the world. In this scenario, investors do away with risky assets and park money into safer Treasury bonds.

 

As an immediate reaction, it will be a negative for gold and silver prices.

 

We also see copper prices coming under some profit-taking. But eventually, once the yields start to plateau or settle down at 4.7-4.8 per cent, then some bottoming out of industrial metals could start.

 

Now, the narrative around rate trajectory could change rapidly in 2026. In the last month, the rate hike probability in September has come down from a 75 per cent probability to 40-50 per cent, and from a two-rate-hike scenario, the world is talking about one. If there is only one rate hike, probably the bottoming-out formation will happen sooner rather than later.

 

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