Gold, silver lose sheen in 2021. Will they glitter next year?

NEW DELHI: After rallying 30 per cent in 2020, the glitter of gold did not last in 2021. This was largely because of a strong US dollar, which historically has an inverse relationship with the bullion, and a fading safe-haven appeal, as the outlook for the global economy improved though the inflationary phase wasn’t as “transitory” as was expected by central banks globally.

Silver, too, took a hit for the year amid an increased volatility in industrial metals. Analysts are moderately positive on the two precious metal counters for 2022 and a few analysts claim they can still deliver a double-digit return.

Gold, at Rs 47,895 per 10 grams today, is down 4.2 per cent this calendar year over the December 31, 2020, price of Rs 50,005 per 10 grams. The yellow metal delivered a 27.96 per cent return in calendar 2020.

“After the modest losses in 2021, gold faces an equally challenging year in 2022 as the Fed (US Federal Reserve) and other central banks fastened the monetary tightening process to controlling rising prices,” says Ravindra V Rao, VP-Head for Commodity Research at Kotak Securities. “However, at the same time, rising inflationary pressure and signs of volatility in equity markets may increase gold’s appeal. Gold may continue to remain in a broad range unless there are fresh triggers. However, the general bias may be on the upside as investors look for alternative assets.”

Sugandha Sachdeva, Vice-President-Commodity and Currency Research, Religare Broking, says as long as the $1,680 per ounce level is holding for gold in the international market, it would be prudent to adopt a buy-on-dips strategy. While the US jobs market improved in 2021, the inflation trajectory has not been “transitory”, as the US central bank had expected, she points out.

Rising inflation could ignite gold’s safe-haven appeal for wealth preservation, after a long phase of consolidation. There is also huge pent-up wedding-related demand for gold in the domestic market. Central banks are also accumulating the precious metal, Sachdeva says, and their gold reserves have reached a 31-year high in 2021.

She advises investors to look at buying gold on declines towards Rs 46,800-46,500 per 10 grams. She sees strong support for gold at Rs 44-500-45,000 per 10 grams and claims Comex gold can touch the $1,970 per ounce level in 2022, which corresponds to Rs 52,500 per 10 grams in the domestic markets.

An ETMarkets.com survey of 13 brokerages saw analysts advising 10-20 per cent investments in gold as a part of asset allocation in 2022.

Standard Chartered Wealth India Standard Chartered Wealth says historically, gold does well in periods of high inflation. If inflation proves to be higher or lasts longer than expected, gold can act as a portfolio hedge. “Also, we expect higher bouts of equity market volatility in 2022 given the transition to mid-cycle. This can be partially mitigated by gold. Lastly, our view of modest dollar weakness should eventually offer a pillar of longer-term support for gold,” it adds.

In the case of silver, global demand is expected to reach 1,155 million ounces by 2025, growing at a CAGR of 2.98 per cent. The global silver market will see demand reaching 1.29 billion ounces this year, the first time it has breached 1 billion since 2015, according to the latest report from the Silver Institute.

Sachdeva says $21 per ounce is the support for Comex Silver, and it corresponds to Rs 58,000 per kg. She advocates accumulating silver around Rs 60,000-59,000 per kg zone for a target of Rs 74,500 per kg ($26.50-27 per ounce globally) as long as the support holds on a closing basis. Increased demand for green infrastructure and high investments in the renewable energy space could also lift demand for silver, which is used in solar panels and electric vehicles. Besides, a surge in global inflation would also entice buying interest in silver as it is relatively cheaper as compared with other commodities.

Rao says silver saw modest losses in 2021 amid increased volatility in industrial metals. ETF outflows also showed weaker investor interest, while the outlook for industrial demand was mired in the slowdown in manufacturing activity globally, he says.

This precious metal last traded at Rs 61,996 per kg, down 7.85 per cent over Rs 67,281 per kg it traded on December 31, 2020.

“Silver may continue to struggle for direction as gold faces challenges from the Fed’s monetary tightening expectations, while industrial metals may be challenged by improved supply expectations and slower Chinese economic growth. However, the long-term outlook for silver still remains positive owing to increasing uses in the industrial sector and this may cause investors to accumulate the metal at lower levels,” he adds.