Silver could outperform gold in the coming year, Motilal Oswal Financial Services Ltd (MOFSL) has said while predicting that it would reach Rs 1,25,000 on MCX within the next 12-15 months.
The prediction comes as silver has already demonstrated remarkable strength, posting gains of over 40 per cent year-to-date and breaking through the Rs 100,000 barrier in domestic markets.
Gold, which has been a consistent performer since 2016 (except for 2021), isn't far behind in the optimistic outlook. MOFSL has set ambitious targets for the yellow metal at Rs 81,000 in the medium term and Rs 86,000 in the long term. On the international front, gold is expected to reach $2,830 on COMEX in the medium term, potentially extending to $3,000 in the long term.
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“2024 has experienced a significant price rally fuelled by market uncertainties, expectations of rate cuts, rising demand, and a depreciating rupee. The months following the US presidential election will be critical in shaping gold's near-term trajectory. Hereon, the two key factors underpinning this year’s rally in precious metals are expectations of rate cuts from the Federal Reserve and rising geopolitical tensions, particularly in the Middle East. Overall, the sentiment for this Diwali is projected to be positive, raising optimism for bullion,” said Manav Modi, Analyst, Commodity Research, Motilal Oswal Financial Services
Festival season and historical performance
This year, Diwali celebrations coincide with two significant events: the U.S. presidential election and the final Federal Reserve policy meeting of 2024. Despite concerns about rising prices potentially affecting demand, the festival season traditionally sees increased gold buying. Historical data reveals impressive returns, with investors who purchased gold during Diwali 2019 potentially seeing returns of approximately 103 per cent by this Diwali.
MOFSL’s analysis of leap years and gold performance patterns shows a particularly interesting trend: since 2011, only two instances (2015 and 2016) recorded negative returns in the 30 days leading up to Diwali. The pre-Diwali gains have generally outperformed post-Diwali returns, except for 2022.
Key driving factors
Two primary factors are driving the rally in precious metals:
Federal Reserve’s monetary policy: The recent 50 basis points rate cut aims to stimulate growth amid easing inflation and a softening labour market, though Fed officials continue to send mixed signals about the economic outlook.
Geopolitical tensions: Ongoing conflicts, including Russia’s invasion of Ukraine and the Israel-Hamas situation, have increased market uncertainty and boosted safe-haven demand.
The upcoming US presidential election, particularly the political rivalry between former President Donald Trump and current Vice President Kamala Harris, could introduce additional market volatility due to their contrasting approaches to foreign policy and military engagement.
“We continue to believe that gold has further upside potential wherein any dips could present buying opportunities. According to our recent quarterly report, a correction of 5-7 per cent is plausible and could serve as an accumulation zone,” added Manav Modi.
Historical data supports this optimistic outlook, as precious metals have generally performed well during leap years, which coincide with US presidential elections. Since 2000, only one negative return period was recorded during leap years (2012-2016), with all other periods showing positive momentum.