Q: The world seems to be a little less uncertain now with the US-China tariff truce, India-Pakistan ceasefire and other things. Gold is consolidating so how long do you expect the consolidation to go and what is the target for 2025?
Actually, at the hindsight if you just see that this has actually prompted a surge in this risk sentiment going by the way the truce is… the de-escalation between the US and China, so that has actually promoted more towards the risk sentiment and probably it also dented a bit of gold appeal, but actually it was very short-lived. USD, also dollar shot up, and the treasury yield also rose, thus the dent in gold appeal temporarily, which we witnessed. In fact, the surprising thing was when Moody’s downgraded the US government on the credit rating part of it…
Yes, we are expecting the consolidation at this stage to the levels may be around $3,300, which is going on. At best, a bit of correction can happen, and it can consolidate in the range of 3,230. It is too early to call out as a top for the gold prices, and also it is better cushioned by the central bank demand and the ETF retail segment in the first quarter of 2025.
So, there are enough trigger points which can lead gold prices other than the calming down of the geopolitical trade tensions between the US and China.
For 2025, gold should be hovering in the range of $3,440 to $3,570 roughly, and the strength in gold would continue through this year,
Q: Gold prices have fallen by over 4% (Rs 4,000 as on May 21) from their peak, and trading around Rs 93,000 per 10 gram on MCX. Do you see the weakness to continue in the short term and what level could be hit on the downside?
See, after having corrected from 3,500 on April 22 to close to around 5% to 6% at the present levels, I do not see much weakness in the MCX range also, and the domestic price level should be close to 96,500 should be the stiff resistance, in fact, I would say. Once, it were to cross 96,500 in the short term, I am even expecting a trend that could take it to 97,500. So, probably the squeeze or the support can be expected around 93,600 for the short-term investor. Weakness per se in gold could set in only below 91,800. So, I do not see that going that far, but the support should be anywhere close to 93,600.
Q: Do you think gold as an asset class could outperform Nifty in 2025?
Absolutely, if you were to see the gold spot versus the Nifty in 2023, it was 13% versus 20% for the Nifty… 13% was the rise in gold price. In 2024, gold rose by 27% while Nifty gave a return of 9%. In 2025, in the last 4-5 months, there is already a 23% rise in gold, whereas 4% is the rise in Nifty. So, this impressive performance should take it along for the second half also because of the seasonal pattern in favouring the strength in the second half for gold internationally. So, I find Nifty would be a laggard as compared to gold for the year 2025.
Q: By seasonal, do you mean wedding season and the festival?
No. What I mean is the seasonal pattern of the gold behaviour, in the second half of the year literally if you flashback and see, unwind and see how the trend has been, gold internationally in the second half always performs very well. We are still left with the second half to come, so that would also give a sentimental support that can add on to the gains made so far.
Q: The demand for gold has been coming from various quarters like central banks, funds and retail investors and in that context do you think supply and demand are evenly matched and if there is a gap, can you quantify that?
Supply is not at all a constraint per se when you compare at par with all other commodities. Gold need not be compared with other commodities in supply-side terms. I would say when the gold is above ground is close to around 2,16,000 tonnes which is proven and from that if you were to see the breakup, in 2024 there is almost the supply is always to the extent of 3,600 to 3,700 tonnes per annum and adding to the recycling of gold which is around 1,400 tonnes, it takes to 4,600 tonnes as the demand factor.
For 2024 if you were to see, as per the World Gold Council‘s statistics, 4,606 tonnes were the demand from 2024 year whereas the supply was close to 5,042 tonnes. In the first quarter of 2025, the demand was 1,311 tonnes whereas the supply was 1,201 tonne.
The one very salient feature we observe here is the ETF, which in 2024 year was a reduction of 7 tonne whereas in 2023 it was 244 tonnes reduction in the ETF. Now, in the first quarter of 2025, we saw buying of 227 tonnes. So, in the basket of 1,311 tonnes, which is the total demand for the first quarter of 2025, 227 tonnes has come by way of the ETF.
So, basically, the traction for the ETF is growing, is what you want to say?
Exactly. Whereas the jewellery demand is a little bit on the downside, while the investment demand and probably even the central bank is averaging out. I would not say it has really picked up, as the central banks bought 244 tonnes in the first quarter of 2025 compared to 1,086 tonnes in 2024.
Q: How are you seeing credit rating cut for the US by Moody’s, and can it take the prices even beyond your targets?
We saw immediate knee-jerk reaction would have been different.Moody’s cut came because of unsustainable debt levels in the US, ballooning interest cost and political uncertainties.
If you were to compare the same scenario in 2011 when S&P downgraded the US credit ratings, there was a fall of almost close to 10% in the equity markets in the next two months. A similar pattern was observed after the Fitch downgrading in 2023 as the S&P 500 plunged to almost 17% over the next three months.
So, the rating cuts have proven negative and maybe this time it is different… it is much more amid fiscal erosion, rising yields, and mounting geopolitical scenario.
I find gold could cross the targets with further catalysts other than this downgrading, which you are talking of. The other catalysts are inflation data, economic instability and probably the Fed interest rate cuts, which can come up and also let us not forget the yield is also picking up. I mean, this we are maintaining, that is the reason we are maintaining the gold to be at a level close to $3,570 per ounce in the year 2025. So, the rating has not much impact immediate terms, but yes, other catalysts are going to really support gold.
Q: Gold-to-silver ratio is at an all time high which means that silver is underpriced. Does this make silver a better value buy for investors?
Yes, I observe that this ratio is so heavily skewed (in favour of gold). It is not the first time that this has happened. Today GSR (gold-silver ratio) of a 30 year average history is around 68 though the current ratio is 99.
During the COVID times, the ratio went up to 113 and over the next year, we saw silver shooting up by 73%. Similarly, at the time of the financial crisis in 2008, when the ratio went from 53 to 80, silver rallied almost 81% and gold that time rose by only 44%.
So I expect a rally in silver when the economies get back to shape and the growth path is set in line. I am expecting a close to 15% to 20% jump in silver prices once the storm settles and this should take the domestic prices to Rs 1.15- 1.20 lakh per kg.
Q: What should be the strategy to trade gold and silver, and how much should the allocation be in one’s portfolio?
The conventional method recommends a 10% to 15% allocation in gold, but one can increase it for risk aversion
Silver’s prospects are tied to the global economy, so it is more volatile than gold. Gold could be a good diversifier and could be a better proportion. Retail investors have 18 ETFs in India to choose from. One could also go for futures & options.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
