Gold outlook: Has precious metal bottomed out?

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Investment in commodities provides diversification to the overall portfolio due to the way in which the prices respond to different economic, geopolitical and seasonal patterns.

Gold and silver are seen as a hedge against uncertainty and hence we witnessed the prices rocketed during the pandemic to their all-time highs of Rs 56,200/10 grams for gold and Rs 78,000/kg for silver last year in August. The prices were backed by weakening dollar, surge in ETF purchases, record buying from central banks and their accommodative stance with respect to their monetary policy.

However, the prices corrected as soon as the positive news on vaccine came out as the investors’ confidence on riskier assets grew, anticipating quicker economic recovery backed by improving US treasury yields.

With prices trading at Rs 45,500-600 mark at MCX and $1750 at Comex, gold prices seem to have bottomed out and are also at a decent entry point with one-month target of Rs 49,000 and six-month view of Rs 53,000 target again.

Silver also looks bullish, considering its demand from green energy segment and automotive and electric vehicles and gadgets segments, the same is also supported by weakening dollar and improving overall base metal prices and hence can be bought around Rs 67,000 – 68,000 range with a one month target of Rs 73,000 and six months target of Rs 80,000/kg at MCX.

The energy pack, especially crude oil prices, have witnessed a decent rally during the last two months owing to improving sentiments with respect to speedy economic recovery backed by stimulus packages and vaccination activities.

The prices were also supported by depleting US crude inventories and output cuts by OPEC and allies to support the prices. WTI is trading at $62 a barrel with MCX crude trading around Rs. 4600, a barrel. We expect the prices to improve further towards Rs 4,800, considering a colder weather disrupting output and improved demand in the next one month .

Overall, the prices may sustain the levels of $60 as OPEC and allies may start relaxing their output cuts considering the prices are in their favourable range limiting the further upside movement in prices.

On the base metals front, copper has been the pick as the performer, where the prices touched a decade high at LME and all time high at MCX of Rs 737 and is now trading around Rs 705 /kg levels. The surge in prices triggered by exceptional demand from China and other countries as the lockdowns were eased and manufacturing activities resumed to full capacity, even above pre-Covid levels.

The supply glut as a result of Covid lockdowns last year, the overall output from mining is down by close to 12-13% this year vis a vis last year and is also one of the major reasons for the rally we are witnessing in the base metal pack. Demand from the electric vehicle segment will remain the key driver of copper and other metals as we move ahead and we recommend a buy on copper with a 1-month view targeting Rs. 750 at MCX. Even for steel industry, demand for nickel is improving and hence we expect the nickel prices to touch Rs. 1500 in a month’s time and can be brought in the Rs 1,320-1,350 range.

(The writer is Head-Commodities and Currency, Axis Securities. Views expressed are personal)