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 According to a recent Bullion study on Gold and Silver by Ventura Securities, Gold is now acting as a hedge against US economic sanctions too, traditionally behavior being a safe haven asset (store of value) and as a hedge against inflation. Despite inflation being moderated, Gold has rallied to new highs. Short term gold prices will be at a slower pace due slower pace of rate cuts. There is also a risk that gold may give back some of the recent gains (But the trajectory of Gold in the long term is bullish).

In the medium term, adopting a "buy on dips" strategy could be advantageous for the MCX futures:

Technical Outlook (Silver & Gold)

• Gold (Rs. per 10 grams/ $ per Ounce) - prices may rise to levels of Rs 79,000-81,800-84,600-85,700 with support at Rs.77000. On Comex, targets could range from $2,760-$2,840-$2,950-$3,000 with support at $2650
• Silver (Rs. per Kg/ $ per Ounce)- prices may rise to levels of Rs 106000 to Rs.120000 with support at Rs.95500. On Comex, targets could range from $35 - $40 with support at $32.90

Historical Performance

Gold futures are still hovering near record highs ($ 2772 or Rs.78900 +), gaining more than 34% so far this year, although post these highs there has been a profit booking and correction to the prices. After this week’s strong rally, gold appears to be taking a brief pause.

Way back in 2014 Gold was ranging Rs.27000 or $1200, showing remarkable resilience and appreciation. A compounded annual growth rate (CAGR) of 7% - 9%

In this mixed market play and triggers today we have Treasury Yield, US Dollar and Gold on the rise. Are we in for a surprise by FED decision in their FOMC policy statements, only future events play could be a guidance to the bullish trend to the bullion pack (Gold year-to-date is now +34% and the white metal, Silver +41% (Scaled 12 Year Peak).

Sovereign Gold Bonds (SGB)

Almost all Sovereign Gold Bonds (SGBs) trade at a premium, as current market prices also factor in the additional 2.5% returns guaranteed by SGBs.

However, some of the bonds we reviewed are experiencing lower liquidity, which could pose a challenge when buying or selling. ETFs or gold mutual funds may present a better option due to their higher liquidity, but missing on the additional 2.5% annual interest offered by SGB.

As a result, liquidity may be a concern for investors looking to enter or exit their positions in SGBs.

An Asset Allocator

Gold remains a perfect hedge against volatility in stock markets and uncertainty across the world, although not aiming at a superlative return by going overboard.

Its relevance to diversifying investment portfolio’s is augmented from the past data which shows that in the years when equity returns were low or negative, gold compensated by putting up a good show.

Gold is perennially used as a tactical 10-12% allocation in a portfolio, irrespective of the price levels of Gold.

Based on one’s investment goals and liquidity needs, one could consider investing in gold ETFs, sovereign gold bonds, or physical gold (bars or coins), besides taking opportunity in the Gold Futures (Derivatives).

Allocation adjustments (Silver & Gold) should be based on market conditions and personal risk tolerance to achieve long-term financial stability.

Impact zones:

US Elections

The overall stance of fiscal policy might be similar under Trump and Harris, but the two offer starkly contrasting visions in terms of taxes and spending.

Let’s ponder on the higher chances of a victory by Republican presidential candidate Donald Trump at next month's election (5^th Nov’24). Markets betting has the rising odds of Trump winning the US election and with his generous corporate tax cuts proposal to reduce tax to 15% from 21% rates would result in widening the US FED deficit. This could trigger strengthening of Gold.

Trump has pledged to fund tax cuts with revenues from import tariffs. Trump’s policies present the largest upside risks to inflation, due to the impact of tariffs on import prices, which could force the Fed to keep interest rates higher than it would do otherwise.

If policies head in this direction, it could lead to weaker growth, higher inflation, and somewhat tighter Fed policy relative to the status quo policy mix. His desire for a depreciation of the dollar to help American exporters, is also being reiterated.

A second Trump term would bring uncertainty relating to higher tariffs on Chinese goods and a global retreat from free trade.

A Harris presidency would be a less of a threat to China’s near-term outlook.

Today, the economic cycle in the US is on the downswing: inflation and growth are softening, and the FOMC will most likely start easing policy this autumn.

Drivers

• One of the key drivers is growing fiscal pressure. The U.S. national debt is expected to reach unprecedented levels in the next three years, and interest payments on this debt are likely to increase as a share of GDP.  If markets struggle to absorb the increasing debt issuance, volatility could rise, further supporting demand for gold.
• Heightened uncertainty over conflict in the Middle East added to the appeal of gold.
• Central banks in particular could further diversify their currency reserves to gold holdings (Already grew from 3% to 10% of total reserves over the past decade). Over Q1 to Q3 of 2023 global central banks bought roughly 800 tonnes of gold, with China, Poland, and Singapore being the top buyers. Later Q4 of 2023 to Q2 of 2024 they have added 694 tonnes of gold.
• FED monetary policy and expected rate cuts (7^th Nov’24 FOMC meeting). Dollar presently gaining strength is a divergence story due to BOE and ECB seen cutting rates faster than FED and a possibility from Bank of Canada too.
• Upcoming US Election.
• All these factors are giving enough room for furthering ETF buying.

Silver Catalysts

Silver has risen to its highest level since 2012.

• Ongoing supply shortages and expected FED monetary easing.
• The Silver Institute of America is projecting a demand of 1.219 billion ounces in 2024, outpacing a supply of just 1.004 billion ounces (Forecasting a 215-million-ounce silver supply/demand deficit for 2024).

1. The deficit size by 2025 would be augmented due to Russia’s announcement to increase their precious metals holdings which includes Silver.
2. China to come up with a national solar grid till 2030 which demands massive quantum of Silver. Almost the entire Silver produced in China is annually being consumed.
3. India, likewise, announced $109 billion in grid investments for renewable energy sources, requiring large quantities of Silver.
4. Lastly investor money is likely to pour in from greater public into silver (“poor man’s gold”) as a cheap substitute for gold.

• Demand outlook bullish - Military (Missiles radars and satellites) and renewable energy sectors (photovoltaic panels and electric vehicles), are fueling the metal’s momentum.

Silver rally and momentum shows no signs of slowing and has rewarded the long-position holders.

Above views are of the author and not of the website kindly read disclaimer