Outlook – Gold prices seen bullish, base metal demand to outpace supply

Gold touched a 5 month high of about $1900 mark per troy ounce at COMEX from the March 2021 lows of $1700’s, consolidated in the recent trading session on account of improving dollar and treasury yields.

The yellow metal has also responded to the opening up of economies backed by robust vaccination drives, diminishing the safe-haven appeal in the short term.

The long-term fundamentals for gold also remain positive ahead of the $6 trillion proposed fiscal spending by the Biden government, indicating a loose fiscal policy.

In the domestic market, gold almost touched Rs. 50,000 per 10 grams range as the dollar touched 5-month low during May 2021. The prices, however, are stabilising around Rs. 48,500 mark per 10 grams with an upward trend in the near future, offering a buying opportunity for investors.

We expect the prices of gold to remain bullish in the medium to long term as the higher inflation and negative inflation-adjusted yields will support prices on every dip targeting Rs 55,000 by the year-end in domestic markets.

Silver  

Silver on the other hand, improved from March 2021 lows of Rs. 64000 per kilogram (Kg) and touched Rs 74000 levels before consolidating back to Rs 70500 levels now.  

Silver prices have been responding to both gold from the precious metal segment and copper and other industrial metal segments.

We expect the industrial usage of silver to improve supporting the prices in the near term and expect a target of Rs 80000 per kg by the year-end in the domestic markets backed by weaker dollar and yields. 

Base Metals  

Base metals consolidated after touching record highs and the Chinese stance to counter the price rise, however, most of the base metals especially copper, nickel and zinc are expected to stay firm owing to demand from the manufacturing sector from two of the largest economies.

Overall, the stocks of the London Metal Exchange are thin and this year, the demand for base metals is expected to outpace the supply that is hit by logistical and labour issues.

We expect copper to again reach levels of Rs 800 per kg in the domestic market from current levels of Rs 736 as demand from electric vehicle segment shall support the prices. Zinc prices may also find support from recent corrections as demand from the steel and the iron industry is expected to drive zinc prices in the near term.

Energy

In the energy sector, crude oil prices recently crossed Rs 5000 a barrel mark in domestic markets with WTI trading at $69 a barrel and Brent at $71.5 mark supported by the optimism over demand recovery supported by vaccination drive and recovery of overall demand from global markets.

The Iran crude supply may cap the prices in the near future to an extent along with the demand concerns due to the rise in the Covid-19 cases across Asian countries. We expect the WTI crude prices to stay in a tight range of $65 – $70 in the near term with a positive bias.

In the domestic markets, we expect crude prices to get capped around Rs 5100 a barrel and may consolidate to Rs 4,700 a barrel in near future with an opportunity to buy on dips to investors who missed the crude rally.

(Sunilkumar Katke is Head – Commodity & Currency, Axis Securities)

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