GR Exclusive: Gold, Silver Prices Are North Bound In 2024, Buy SGBs For Long Term, Says Emkay's Joseph Thomas

The countdown for the new year has already begun, and the jingles of Christmas have already been sung. The year 2023 was filled with bitter uncertainties on a global level, but for the Indian market, things were rather different. The current month had more days of bulls as the dollar weakened, bond yields slipped and rates cut hopes heightened for 2024 from RBI. Inflation is cooling slowly, and economic growth in India is resilient. Amidst this, Gold prices in India touched a new all-time high as well. But will the trend continue in 2024?

In an exclusive interview with GoodReturns.In, Dr Joseph Thomas, Head of Research, Emkay Wealth Management, highlighted that gold prices have received momentum because of Fed's status quo on key rates. He expects both gold and silver prices to continue on a northward trend, with the dollar weakening gradually being a single determining factor. In the initial days, MCX gold prices touched an all-time high of Rs 63,500 per 10 gram.

However, Thomas does not expect gold to outperform equities in the long run. That being said, he recommends buying sovereign gold bonds for a long-term perspective rather than physical gold, gold funds and gold ETFs.

To traders, Thomas guides them to begin allocating a part of the investment surplus into gold and silver.

Here are the excerpts from the interview with Dr Joseph Thomas, Head of Research, Emkay Wealth Management:

1. In early December, gold prices touched a new all-time high, do you expect gold another record high by the end of 2023 and what will it be?

Gold has already touched US$ 2050 levels. It may make a new high at around US$ 2080 . What is giving so much momentum to gold prices is the last Fed policy announcement in which the Fed announced that the base rate will be on hold at 5.25 % to 5.50 % and that there was no need to hike rates any further as inflation is declining and the disinflationary effect which the Fed wanted is on course. All this while despite high inflation gold was not able to go up mainly due to the hikes in the policy rate, and the consequent rise in the currency yield of the US Dollar.

2. What has been driving gold prices in 2023?

Gold prices were guided by retail demand and not-so-significant central bank buying. Occasional speculations regarding the end of the tight money policy in the US and in Europe used to infuse some life into gold movements. It should be noted here that gold price had dipped to as low as US$1680-US$ 1730 levels before it started moving up. The singular factor that acted as a deterrent to gold prices from moving up was US$ interest rates. Even the safe haven property did not get activated to support gold despite the situation in Eastern Europe and the Middle East.

3. Has dollar and bond yields made any significant impact on the true potential of upside in haven assets in 2023?

The bond yields have peaked in most of the economies. Market yields have, in fact , started moving down. This is because inflationary pressures are gradually waning. Oil prices are trending lower due to some amount of demand destruction that has happened during the recent times when high inflation and high fuel prices adversely affected demand. Bonds and fixed income as a whole may rally as central bank policies have halted any further hike in official rates, and therefore, yields will start falling across maturities.

4. Do you expect general elections to lift gold prices in early 2024?

There is nothing that links general elections and gold prices. Price of gold in the domestic markets will be determined solely by the US$ price of gold and the US$/Rupee exchange rate. The trend that is already indicated earlier in this interview stands good.

5. What will be the outlook of gold and silver prices in 2024? What factors will influence gold and silver prices in 2024

Both gold and silver prices are northbound, and the likely gradual decline of the US Dollar against other currency majors is the single determining factor as indicated earlier. However, this is not something that is going to be fully unveiled over a month or two, but over a period of six months to one year.

6. Should investors look for other market-related gold investments than buying physical gold, what would you recommend? Sovereign gold bonds have outperformed Nifty this year, do you expect the trend to continue and why?

See, SGBs are a long-term investment in gold. It is structured in such a way as to give the buyer a convenient mode to transact, hold, and encash the gains. It carries a coupon which gold funds or gold ETFs or even physical gold does not offer. For, those who would like to buy and hold and unlock the potential capital gains and earn a coupon too should buy SGBs. We cannot expect gold to outperform equities consistently over the long run. Equities will retain the return differential that is quite significant over longer time periods.

7. Any investment strategy in bullion that investors could adopt in 2024?

Start allocating a part of the investment surplus into gold and silver. Apart from funds and ETFs, there are mutual fund schemes which will give you the requisite exposure with liquidity. The choice of a suitable product may be made in consultation with your portfolio manager or financial advisor.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.