Investor’s sentiment coupled with potential US dollar weakness could be the major factor in helping lift silver in the new year.
Silver found a new high in September at Rs 50,672 per kg only to slide. Despite uncertainties surrounding the commodity market, it made a brief recovery in the festival month of October but didn’t come close to Rs 50,000. Let's take a look at the factors that may push silver prices to Rs 50,000 again in the new year.
Gold and silver are the safe-haven destinations for investors troubled with economic conditions and worried about the uncertainties of equity markets. The stock markets are at all-time highs. If we look at US, Asian and European markets, they continue to push higher with every passing day.
We do have an ongoing threat of a trade war between the US and China, but there is hope that the two countries are closing in on phase of an agreement. However, there is a growing concern about the direction of the global economy, which seems to be trading sideways. A continuation of this movement over the next year will give a natural lift to the price of silver.
A better bet here is a “weaker US dollar”. Traditionally, if the dollar weakens, then metals like gold and silver strengthen.
The US Federal Reserve has already cut interest rates a couple of times and has maintained a fairly cautious outlook going into 2020. If we see further rate cuts or an economic stimulus of the kind we have seen over the recent years, it will devalue the dollar and help lift silver prices.
Gold and silver are of course hedges against inflation. So if we see the cost of living rises dramatically, then it will lift the prices of precious metals further. At this moment, we are in a fairly low inflation environment in the US. That’s why we have a long wait to pinning our hopes on inflation pushing the prices up.
Another factor to look at is the industry’s demand for silver. More demand in various industrial applications will boost the price. Demand from India increased by 70 percent in 2019 and the country is responsible for 17 percent of the world’s silver consumption. However, a much wider demand is needed from the industry to drive p prices.
To conclude, investor sentiments coupled with potential US dollar weakness could be the major factors in lifting silver in 2020. For many years, we saw silver prices decline, a trend that finally started reversing over the last one year. One can expect this trend to continue.
(The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.)Disclaimer: The views and investment tips expressed by investment 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.
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