Keep a buy on dips stance for both Gold & Silver: Motilal Oswal Financial Services Ltd
The Precious metal pack especially, Gold and Silver experienced significant move last week. Gold prices surged to an all-time high, breaking the key $3,000 level, while silver also hit an all-time high on the domestic front in India, breaching Rs. 1 lakh. A remarkable rally was witnessed in both Gold and Silver last week posing more 3% gains, reaching a historic high. These rallies were primarily driven by a combination of global trade concerns, softer inflation data, fall in dollar index, and expectations of potential interest rate cuts by the Federal Reserve.
Dollar index has experienced significant weakness last week, marking its largest weekly drop since the pandemic, against its major crosses. This drop in the dollar was further supported by the German fiscal stimulus package, which is expected to boost the Eurozone’s economic recovery and reduce the relative strength of the U.S. dollar
One of the key drivers behind the surge in gold and silver prices was the ongoing trade tension between the U.S. and Europe. President Trump’s fresh tariff threats added further volatility to the markets. The U.S. president threatened to impose tariffs of up to 200% on European alcoholic beverages, including wines and champagnes, in retaliation for the European Union’s decision to impose a 50% levy on American whiskey. This move was seen as a response to Trump’s tariffs on imported steel and aluminum.
In addition to the geopolitical tensions, the soft U.S. inflation data also played a critical role in supporting the precious metals market. U.S. inflation in February fell more than expected to 2.8%, below expectations of 2.9. This decline in inflation reinforced market expectations that the Federal Reserve might cut interest rates in the near future. The weaker-than-expected inflation data also further fuelled concerns about slowing economic growth of the US. Meanwhile, U.S. jobs report for February revealed a slower-than-expected pace of job creation, with the economy adding 151,000 jobs, falling short of the expected 160,000. Furthermore, the previous month’s job creation figures were revised downward by 18,000 to 125,000. The unemployment rate held steady at 4.1%, slightly above the expected 4%.
The Federal Reserve is facing a delicate balancing act, as it attempts to manage inflation without triggering a slowdown. President Trump’s aggressive trade policies and the rollout of tariffs have led to uncertainty in markets and business sectors, exacerbating fears about the potential negative impact on economic growth. Federal Reserve Chairman Jerome Powell recently made a speech outlining the Fed's stance on interest rates. Powell indicated that the central bank is not in a hurry to cut rates and is focused on distinguishing between short-term noise and longer-term economic trends. He expressed his expectation that the Fed would maintain rates at their current range of 4.25% to 4.5% at the upcoming meeting.
China’s gold market saw strong growth, with record inflows into gold ETFs in February. This growth was supported by improving economic conditions within China, which is expected to boost jewellery demand in the coming months. As domestic economy recovers, China’s gold demand is expected to remain strong, supporting market sentiment.
This week, market focus will be on key economic data releases, including U.S. retail sales, the IIP, the Philly Fed Manufacturing Index, and a few housing related numbers, which could provide insight on overall economic growth. Investors will also closely monitor the Federal Reserve’s interest rate decision and Chairman Powell’s comments, with particular attention to any signals regarding inflation and growth numbers. In China, the Loan Prime Rate (LPR) will be in radar for potential changes. Amid global trade tensions, weak inflation data, and U.S. economic concerns, gold and silver rallies reflect growing risks. The Fed’s actions will be a key driver of market sentiment in the near term, shaping global economic expectations. After a sharp rally, both Gold and Silver could witness some consolidation; however, bias for both continues to remain on higher side. Investors could continue to keep a buy on dips stance for both metals.
Above views are of the author and not of the website kindly read disclaimer
