Will gold, silver bounce back in FY21?
“After a spectacular run in the pandemic-hit 2020, precious metals have failed to impress despite a volatile beginning in the new fiscal year. Analysts, however, believe that the current consolidation phase is nothing but a normal one after last year's peak.
"With fundamentals suggesting lower rates and higher anticipated inflation numbers, gold and silver prices may start their up trend again, attracting attention towards precious metals," Sunil Kumar Katke, Head - Commodity and Currency Axis Securities, told ETMarkets.com.
Analysts believe that investors are now likely to shift from equities to bullion markets for the sake of safety. Weakened dollar and cooling off of US bond yields may also boost gold prices globally.
Kshitij Purohit of CapitalVia Global Research said, "Last year, gold and silver moved very strongly and made all-time highs. The market has been consolidating since the last three months. Overall, both metals are looking strong now."
Factors like exceedingly strong reports on US GDP and the government’s plan to spend on infrastructure have sparked a strong rally across industrial metals and created pressure on precious metals.
"This year, gold has given a negative return of about 6 per cent due to expectations of global recovery and strength in dollar and US bond yields," said Anuj Gupta, Vice President - Commodity and Currencies, IIFL Securities. "However, purchases by the central bank and demand for gold ETFs, digital gold and Sovereign Gold Bonds are increasing substantially."
Market watchers said vaccination drive and a strong rebound of global economies along with ultra low rates has diminished the appeal of safer bets.
Profit booking in the equity market is a positive sign for precious metals. "Investment demand and portfolio diversification may increase demand for gold. Investors are betting on gold due to the uncertainty and risk of inflation," Gupta said.
Precious metals are usually treated as a diversification tool in one's portfolio. Analysts suggest investors should accumulate gold and silver in a staggered manner. Precious metals are witnessing inflows from institutional buyers and central banks, claim analysts.
"Prices have almost bottomed out and the fundamentals look strong in the near term said Katke of Axis Securities.
Silver appears to be scoring over gold. Given the industrial demand the rally in base metals, Gupta expects silver to outperform gold this year.”