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Interview| Gold prices to touch $2,035/oz by year-end; non-ferrous metal rally supported by higher demand prospects: HDFC Sec’s Tapan Patel

Patel believes silver prices will outperform gold in the long term with strong economic recovery post pandemic. The gold/silver ratio may see some recovery from current levels towards 75 while long term range is expected to remain at 60-80.

Mumbai / May 29, 2021 / 03:50 PM IST

Gold prices have given a breakout of near term trend line resistance at $1860 and prices are expected to trade higher in the near to medium term despite re-opening of economic activities, say expert.

“Gold prices are expected to touch $1,920 per ounce in 1 month while next quarter prices may try to break $1,970 levels. The year-end target is expected at $2,035 after breaking major resistance at $1,970 per ounce”, Tapan Patel- Senior Analyst (Commodities), HDFC Securities said in an interaction with Moneycontrol.

Patel said that the current rally in non-ferrous metals is dominated by a higher demand prospectus with many countries easing lockdown measures followed by improved economic data from major consumers. The large scale stimulus packages and green initiatives also added fuel to the prices to scale new highs.

Edited Excerpt

Q: Why are non-ferrous metals scaling new high? 

Non-ferrous metals have witnessed a strong rally in the year 2021 extending the gains of pandemic hit 2020. Copper, iron ore, steel and aluminium prices have soared with demand outpacing supply. The higher demand from China and improved economies after global vaccine rollouts has raised the demand outlook for the current year. Metals have rallied on supply concerns from China on pollution curb measures. Large scale stimulus packages and green initiatives also added fuel to the prices to scale new highs.

Q: Could the rally fizzle out? 

The current rally in non-ferrous metals is dominated by a higher demand prospectus with many countries easing lockdown measures followed by improved economic data from major consumers. On the contrary, the supply figures are showing enough reason to cap upside with higher reserves and increased production. China has raised concerns over heated metals prices. Few industrial metals have witnessed correction recently after China hinted at policy action to cool down inflation concerns.

Q: How high could non-ferrous metal go? 

Global economic recovery after COVID crisis has shown great investment confidence with the re-start of manufacturing and trade activities. US, Europe and UK are set to lift lockdown measures paving way for higher demand for non-ferrous metals. The higher forward premiums with possible supply crunch from China may boost prices in the medium term. Copper prices may see an upside of 18% from current levels while rest of the metals may extend the rally by 12-15% from current prices.

Q: Silver has started to outperform gold recently and the gold/silver ratio has been hovering around 65-68 after scaling to 130 last year. Will the rally in white metal suggest that it has more upside than the gold and gold/silver ratio to correct further? 

Silver prices have rallied recently following cues from higher demand for industrial metals. The rise in US bond yields and growing attraction for cryptocurrency has capped gold prices dragging down the gold/silver ratio from all-time highs. We believe silver prices will outperform gold in the long term with strong economic recovery post pandemic. The gold/silver ratio may see some recovery from current levels towards 75 while long term range is expected to remain at 60-80.

Q: Can global central banks play a spoilsport to arrest runaway rally in commodities and contained inflation? 

The rising commodity prices have raised concerns of higher inflation for global central banks. The economic recovery is still in need of timely support to overcome pandemic effects and boost growth. Any sudden move to contain inflation may backfire as many countries are still struggling with the second wave of COVID19 following partial lockdowns. Hence, we believe higher inflation can be a transitory effect and central bank will keep “wait and watch” policy without being a spoilsport to the current rally in commodities.

Q: Where do you see gold price in the next 1 month, next quarter and by year-end? What are the key triggers that investors need to look out for?

Gold prices have given a breakout of near term trend line resistance at $1860. Gold prices are expected to trade higher in the near to medium term despite re-opening of economic activities. prices are expected to touch $1920 per ounce in 1 month while next quarter prices may try to break $1970 levels. The year-end target is expected at $2035 after breaking major resistance at $1970 per ounce. Investors should look for the cues from major central banks and bond market movement as higher inflation will be the key factor to boost buying in gold.

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Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sandeep Sinha
first published: May 27, 2021 04:07 pm