A report by Tata Mutual Fund released on Thursday said that even though gold and silver prices have declined post US presidential election results falling more than 6% from all-time highs, prices of the bullion may resume uptrend after stabilizing in the current range as the broad fundamental factors still support bullish trend in bullion prices.
The US FED interest rate cut, central banks’ gold buying, geopolitical risk, US trade policies and economic recovery continue to remain the key supportive factors for bullion prices.
Investors may look for accumulation on any decline in the prices. The current market environment is going to be favourable for a strategic allocation of gold and silver as an investment in the portfolio, said the Tata Mutual Fund report.
Gold prices have rallied with the Fed pivot starting from September 2024. A rate cut scenario has proven favourable for gold prices as per historic correlation. The global economic data headwinds and rate cut effect on the US economy will be crucial to watch over the coming month. Any disappointing data may increase speculation for a recession/soft landing which pushes investment for haven assets.
Global central banks’ demand for gold has remained higher in the last two years with a record buying of 1081.9 tonnes in 2022 and 1037.4 tonnes in 2023(World Gold Council). Russia is also doubling its reserves of gold and foreign currencies on its de-dollarization path. Global central banks may continue to add to their gold reserves which may keep gold prices firm.
“We believe geopolitical risk premium may continue to be there in gold prices over the period as global power tussles and proxy wars will continue to impact key trade policies and trade routes,” the report added.
Physically backed gold ETF holdings are still down from their all-time highs made in 2020. Such light positioning in global gold ETFs with higher prices signals demand strength going forward.
“We have seen a rare sync in price move between gold, dollar index and treasury yields. The ease in interest rates may put pressure on the dollar and yields which may support gold prices to trade firms. A new Trump administration seems more prepared than the previous term and hence we may expect aggressive policies, especially on the global trade front. This may lead to more polarised market sentiment on uncertainty, trade war and de-dollarisation trend. This may continue to add a risk premium in gold,” the report said.
Slower growth from China may continue to be a worry for industrial demand for silver. However, the longer-term demand outlook is positive for green technologies, solar photo-voltaic cells and renewables.
