Q1: What is your assessment of bullion’s performance in CY24 compared to other commodities and has it achieved its targets for this year that you had estimated?
2024 has been a landmark year for the yellow metal, with Comex gold rising 40% from its annual low to hit an all-time high of $2,801.8 an ounce in October. On the domestic front, MCX gold reflected this trend, climbing over 25% year-to-date on strong physical demand.
The US Several factors contributed to this surge in investor interest, including the Federal Reserve’s rate cuts, heightened geopolitical tensions and unprecedented demand from central banks.
Meanwhile, COMEX silver prices rose from their February low of $21.975 an ounce to a 12-year high of $35 in October. The upward momentum was fueled by falling interest rates and increased demand for safe-haven assets coupled with strong industrial demand and a supply deficit. The global silver market is set to record a physical deficit for the fourth consecutive year with a shortfall of 182 million ounces (moz) as of 2023, and this deficit is expected to continue for the foreseeable future.
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Base metals are also on track to end 2024 on a positive note, driven by optimism around China’s fiscal support measures, supply constraints and strong demand from emerging industries such as electric vehicles and renewable energy. Copper, the leading base metal, hit record highs in mid-May on the LME, COMEX and Shanghai exchanges, driven by a short squeeze on the COMEX. LME copper hit an all-time high of $11,104 per tonne, while MCX copper rose to Rs. A record high of 945.9 was reached. However, year-to-date gains have been cut significantly by China’s economy, a stronger US dollar and fears of escalating trade tensions under a possible second Trump presidency.
In contrast, crude oil is set to end the year modestly lower amid significant volatility. Oil markets are navigating a complex mix of factors, with key influences counteracting each other. On the supply side, OPEC+ has delayed its planned production increase, while OPEC, IEA and EIA have revised up their oil demand forecasts for 2025, mainly due to a lower adjustment to China’s oil demand growth and US and other non-production increases. -OPEC producers.
Question 2: Can gold replicate its performance of over 25% returns in 2019 and 2020 in 2025 and rise to Rs. Can hit 1 lakh?
Looking ahead to 2025, central bank purchases are expected to continue due to de-dollarization efforts and ongoing geopolitical risks. Additionally, resilient demand from Asian markets, particularly China and India, will further support gold prices. Gold’s role as a hedge against inflation, political instability and economic uncertainty holds it in good stead for the coming year.
However, 2025 could be a tough time for gold, especially due to the policies of President-elect Donald Trump. His proposed tariff and tax cuts are seen as inflationary and could prompt the Federal Reserve to take a more measured approach to interest rate cuts. Lower tax rates can increase government debt, while tariffs can lead to supply disruptions and higher inflation, limiting the pace of Federal Reserve rate cuts.
Markets have already adjusted their expectations for fed funds rates, which are now expected to be between 3.75% and 4.00% through December 2025, compared to the previous FOMC projection of between 3% and 4%. In addition, higher growth expectations, fiscal deficit and inflationary pressures resulting from Trump’s trade policies could strengthen the dollar, which could pose a challenge to gold prices.
Despite these challenges, gold is likely to benefit from safe-haven demand due to the escalating Russia-Ukraine conflict. It is likely to cost Rs. 90,000 per 10 grams, and in the long run the price could reach Rs. 95,000 per 10 grams can go up to.
Silver is poised to benefit from its versatile applications. Silver prices are expected to rise, in the medium term to Rs. 1 lakh and in the long run Rs. 1.1 lakh is likely to be reached.
Q3: We are heading into interesting times as the MPC will be in February under a new governor, the budget will be 2025 and Trump will take office as the US president in January. How will these triggers affect gold fundamentals?
February is shaping up to be an interesting month for gold fundamentals. Trump’s fiscal and trade policies are expected to have the biggest impact on gold. A combination of strong US economic performance, looser fiscal policies and potential tariffs could boost inflation. While higher inflation generally supports gold prices, it could result in rising US bond yields and a stronger dollar — factors that could counteract and keep gold prices range-bound.
Unless there are significant changes in import duties on gold and silver, the Union Budget is unlikely to have a direct impact on gold. Likewise, RBI’s monetary policy can have minimal impact on gold prices unless it leads to significant fluctuations in the Indian rupee. Since gold is priced in dollars, any change in the value of the rupee will affect the price of gold in rupee terms. Therefore, gold traders should primarily keep an eye on the policies of the Trump administration, as they will play a crucial role in influencing inflation, bond yields, the dollar and, ultimately, the performance of gold.
Q4: Even Donald Trump is leaning towards crypto and we are seeing how BTC is making new records. Do you see this as negative for gold?
Both Bitcoin and gold have delivered impressive price performances this year, with gold rising nearly 30% and Bitcoin rising nearly 150% in dollar terms. Despite Bitcoin’s significant benefits, we do not foresee its growing popularity having a significant long-term negative impact on gold prices. Gold is the cornerstone of real money and accounts for a significant portion of central banks’ global monetary reserves.
Looking ahead to 2025, we maintain a bullish outlook for gold. Its enduring role as a trusted store of value, together with its integration into global financial systems, reinforces its resilience and appeal. While Bitcoin has emerged as a dynamic asset, gold’s historical stability and central bank support ensure its relevance in the evolving financial landscape.
Question 5: What should be the gold allocation in one’s portfolio and in which instruments one can invest.
For most investors, allocating 5-10% of their portfolio to gold is a reasonable starting point. This allocation helps hedge against inflation, economic uncertainty and market volatility, while providing diversification benefits. However, the ideal gold allocation can vary based on individual circumstances, such as risk tolerance, financial goals and economic outlook. If an investor takes a more conservative view, he may opt for an over-allocation in gold to serve as a safe-haven asset. Conversely, those with a high risk tolerance and bullish outlook on other asset classes may allocate a small portion of their portfolio to gold.
Given the positive outlook for gold, it would be wiser to capitalize on the precious metal. For those looking to avoid the hassle of holding physical gold, exchange-traded funds (ETFs) and futures contracts offer attractive alternatives.
Also Read: Year-end 2024: Gold outperforms Sensex and Nifty with 20% return, but 2025 could be different. Here’s why
(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)
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