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Informist, Tuesday, Oct. 15, 2024

 

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--Motilal Oswal's Damani: Silver may outperform gold over 12 months
--CONTEXT:Motilal Oswal commodity research head Navneet Damani in interview
--Motilal Oswal's Damani: See gold at INR 81,000 per 10 gm in 12 months
--Motilal Oswal's Damani: See gold at INR 86,000 per 10 gm in 18-24 months
--Motilal Oswal's Damani: See limited upside for gold in near term
--Motilal Oswal's Damani: Suggest accumulating gold on any correction
--Motilal Oswal's Modi: See silver above INR 100,000 per kg in 12 months
--CONTEXT: Motilal Oswal bullion analyst Manav Modi in an interview
--Motilal Oswal's Shah: Volatility in crude oil may continue for 1-2 weeks
--CONTEXT: Motilal Oswal energy analyst Shweta Shah in an interview
--Motilal Oswal Shah: See WTI crude at $62-$64/bbl if West Asia crisis eases
--Motilal Oswal's Damani: Bias towards base metals remains positive
--Motilal Oswal's Damani: Expect copper to hit all-time high in 2025
--Motilal Oswal's Damani: Tight supply to support zinc prices
 

 

By Ashutosh Pati and Sandeep Sinha

 

MUMBAI – With silver giving 35% returns in the first nine months of 2024 compared to the 30% returns from gold, Motilal Oswal Financial Services is bullish on the white metal and says it could outperform gold in the near to medium term as well. "We remain bullish on silver and feel silver either could equate or outperform gold, and we have been keeping that stance for some time as it benefitted from safe-haven appeal," Navneet Damani, head of research, commodities and currencies at the brokerage house, told Informist in an interview. 

 

While the bullishness towards silver is being driven by a recovery in industrial demand and a supply deficit, gold remains more stable than some other asset classes, Damani pointed out, while stressing its safe-haven appeal.

 

The US Federal Reserve's monetary policy has also played a role in the recent bullishness towards gold, Damani said. "From the start of this year, we have been talking about rate cuts and in September, we finally saw a big rate cut from the US Federal Reserve of 50 basis points. The labour market concern that (Fed) Governor Powell mentioned in his comments is also quite visible," he said. "Non-farm payroll numbers in September were better than expectations. So, additional rate cut expectations dropped significantly. But if Governor Powell is mentioning jobs numbers so much, then there are some issues which we can focus on."

 

Expanding on this, he said, "The US inflation numbers have been continuously dropping and the recent consumer price index came 0.1% lower. If you see the market sentiment as well, all core CPI monthly data were positive, but just because yearly numbers were lower, all focus turned to that and gold and silver prices got support."

 

Pointing out the importance of geopolitical factors, Damani said one should also look at what is happening in areas besides West Asia. "We are just talking about West Asia, but we have to take our attention out of there and focus on countries that are yet to intervene, such as the North Atlantic Treaty Organization and the US, which have not even entered the whole scenario. China and Taiwan are completely out of focus and the Russia-Ukraine war is still going on but is on the sidelines because Israel-Hamas is pretty big. All these factors, along with the US presidential election, are possibilities that are currently out of the picture but could support gold prices."

 

PRICE TARGET

"We have revised our medium-term (12-month) gold target on the higher side to INR 81,000 per 10 gm on the domestic front and $2,820-$2,830 an ounce on COMEX," Damani said. "In the long term (18-24 months), INR 86,000 is what we expect on the domestic front ($3,000 an ounce on COMEX). If geopolitical tensions escalate, the numbers could be achieved faster. Incrementally, in 2024, gold has already gained about 20-22% on MCX and 30% on COMEX. Since 2000, there has been no year in which gold has gained more than 32% in one year."

 

He added that incremental gains in gold could be limited this year and about INR 77,000 is what he was looking at on the domestic front. However, if West Asia tensions escalate, the numbers could be higher and history could be made, he said.

 

Talking about the downside risks for gold, Damani said if the war in West Asia comes to an end or the Federal Reserve changes its stance and goes slower on rate cuts, a correction could be seen in gold prices. A fall of 5-7% in gold prices to around $2,480-$2,500 an ounce on COMEX and INR 70,800-71,000 per 10 gm in the domestic market would be a good buying opportunity, and it would be a good support level on a technical basis as well, he said. As even a marginal fall in bullion prices is being lapped up by investors, even decent falls are turning into buying opportunities, he adds.

 

SILVER

"We were betting on Chinese recovery from quarter three (Jul-Sep), but it's still not there. China is slowly giving sentiment boosters. Even if it's not recovering, it is putting out a band-aid that we will cut the reserve requirement ratio and provide stimulus measures -- which is supporting copper, zinc, and silver as well. I feel a good correction from here is a buying opportunity," Damani said.

 

Talking about levels, Manav Modi, bullion analyst at Motilal Oswal, said INR 86,000 per kg was a good buying opportunity if support remains at around INR 88,000 from a short-term perspective. "On the higher side, INR 100,000-125,000 is our in-house target," Modi said. "This was pre-Budget, so if we take that 9% off, it still comes around INR 115,000, so we expect silver prices to be above INR 100,000 from a 12-month perspective."

 

In her Budget speech for 2024-25 (Apr-Mar), Finance Minister Nirmala Sitharaman had announced a cut in the basic customs duty on gold and silver to 6% from 15%.

 

CRUDE OIL

When asked about the sharp volatility in crude prices, Shweta Shah, energy analyst at Motilal Oswal, said the crude oil market is currently concerned about demand. "The moving factor right now is West Asia tension, which is going to sustain for one or two weeks," she said.

 

Shah said that if the escalation in tensions between Israel and Iran eases, she sees WTI prices near $62-$64 per barrel very soon. Japan and the US are going through a slowdown and if this sustains, these two economies, along with China, will impact the market and prices will be in a swift downward flow by the end of the year, she said. Crude, she said, could continue to trade in a broad range this year. 

 

INDUSTRIAL METALS

Supply constraints, falling inventories across exchanges, and rising expectations of more interest rate cuts by the US Federal Reserve in the coming months continue to drive the momentum for industrial metals, Damani said. However, demand from China remains the key for gains in base metals in the long term, he said.

 

In May, copper prices had hit an all-time high of $10,925 per tonne on the London Metal Exchange and INR 945.9 per kg on the Multi Commodity Exchange of India. Damani expects prices on LME to touch an all-time high of $11,115 per tonne in 2025, with a stop-loss at $8,775 per tonne, and INR 950 per kg on MCX, with a stop-loss at INR 750 per kg. He also expects prices of aluminium and zinc to rise in 2025.

 

In view of the transition to green technology, the demand for industrial metals should be sustainable, he said. The use of copper and zinc in the solar energy and electric vehicle battery segment is playing off well and demand for base metals in these segments will eventually increase, he said.

 

Among base metals, copper used to lead a rally or a fall in prices, but this year zinc has taken that role, he said, adding that the reason behind this is the tight supply of zinc since the beginning of the year. The International Lead and Zinc Study Group pegs the global refined zinc market in a deficit of 164,000 tonnes in 2024, as demand for the metal exceeds supply. The group expects global refined zinc production to fall 1.8% to 13.67 million tonnes in 2024.

 

While concerns about alumina production will support prices of aluminium in the short term, this alone won't suffice for the long run, Damani said. Once alumina prices ease, the focus will be on factors such as core aluminium inventory levels and demand from China.  End

 

Edited by Avishek Dutta

 

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