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Below is Year-ender Outlook 2023 On Gold and Silver, Currency and Energy By Mr. Navneet Damani, Senior VP – Commodities Research, Motilal Oswal Financial Services

Gold and Silver:

A roller coaster ride has less ups and downs than what the bullions market had in the year of 2022. Both the metals, Gold and Silver kept the market participants on edge; Comex Gold has made a high of ~$1935 and a low of ~$1630, while silver on other hand made high of ~$25 and low of ~$18. On YTD basis, both the metals have a return of -2% and 2% respectively on the internal bourses. There are few factors which triggered volatility in the market like, move in Dollar Index & yields, aggressive monetary policy stance from major central banks, rising inflationary concern, geo-political tension, which led to this volatility. However, the domestic story is quite different, as even after such macro happenings we did not witness much fall on the MCX, amidst factors like sharp depreciation in the rupee coupled with hike in basic customs duty by 5% on gold.

The year started with an ease off in pandemic fears and expectation over transitory inflation, however things took a drastic turn, with escalation in Russia-Ukraine war increasing panic in the market. War raised worries over supply chain and led to inflation higher across the globe. Sharp surge in inflation led major central banks to follow an aggressive stance on their monetary policy front. In total, major central banks have raised Rate hike was first announced by the BOE, followed by the Fed and recently BOJ, who till now were in favour of loose monetary policy, announced changes in their YCC and possibility of a rate hike. Rise in interest rate expectations has also led to a rally in Dollar Index and Yields weighing on safe haven assets.

Inflation has been the theme of the market since the last year and major central bankers were quite active in bringing the same to their respective tolerance zone. Towards the second half of this year the focus has also been on growth, as aggressive policy tightening stance is also increasing fears regarding recession in the market. Institutions like IMF, World bank, have has also showed their concern regarding the growth in the next year, by significantly trimming their global growth forecasts.

ETF flow has disappointed market sentiment this year, as SPDR holdings on YTD has given -6% returns similarly, Silver ishares holdings were have given -12%. Rise in ETF inflow is also important to lift the overall sentiment for bullion markets. However, on domestic front Gold and Silver ETF’s have performed well with giving an average return of ~12 % and ~15% respectively.

Outlook:

2022 has definitely given a boost in market participants confidence w.r.t gold and silver. Along with Russia-Ukraine tensions, inflationary concern and Covid scare in China, market participants will also carry the baggage regarding slower global growth into the next year. Going ahead, market participants will keenly focus on the monetary policy stance from major central bankers. A move in Dollar Index and Yields will also be watched by the market. Gold/silver ratio has also fallen from the recent peak of ~97 to ~75, supporting the move in silver. And also apart from safe haven bets, advancement in green technology and increase in industrial demand could continue to support silver prices.

Since the start of 2022, our view has been more in the favour of silver outperforming gold, and the returns comparison depicts the same. As per our previous quarterly report, we had given medium target of Rs. 53,000 for Gold and Rs. 64,500 for Silver which was achieved recently. Now, we do see some signs of exhaustion in both metals, however these dips could be used as buying opportunity for any medium to long term investor for the target of Rs. 58,000 in gold and Rs. 73,000 followed by 82,000 in Silver.

Currency:

Rupee weakened sharply this year and weakness has been to the tune of 10% primarily led by strength in the dollar against its major crosses. The greenback has risen as the Federal Reserve raised rates aggressively following surging inflation. From the Federal reserve to ECB to BoE all of the major central banks have raised rates in this year as they remained concern over higher inflation. Very recently, the Bank of Japan also turned a bit hawkish as it raised concern over high inflation. On the domestic front, the RBI too is hawkish but conditions in India have been little favorable when compared to the other nation in terms of inflation. Major currencies in 2022 have fallen by an average over 10% including the rupee. But volatility for the rupee has been curtailed by active intervention by the RBI. Reserves have witnessed a bit of erosion but the central bank is now starting to again build up its reserves and that would act as a buffer in times of uncertainty.  In the coming year, we expect that volatility for the rupee could continue to remain elevated and with central banks at this point of time continue to remain hawkish is likely to be supportive for the dollar across the board. In the next couple of months, focus will now be shifting to how the economic numbers from the various nations start to come in as steps taken by the major central banks is likely to reflect on the underlying economy. We expect that the USDINR(Spot) could trade with a positive bias and in the next quarter could quote in the range of 81.50 and 84.50.

Energy:

Oil prices have been one of the most volatile assets with 2022 year starting off with strong bullish momentum which had been building throughout most of 2021, but saw a huge selling pressure as macro-economic headwinds took centre-stage and apprehension about OPEC+ cuts and EU embargoes faded. Some of the geopolitical risk that sent oil higher earlier this year, specifically the Ukraine conflict, had also eased of late. Instead, Investors main worries remain over a weakening economic backdrop and low liquidity across markets. Investors remain unimpressed by the G7 oil price cap that has not led to any anticipated supply shortage.