Gold prices could surpass 51,000-51500 on MCX, says Pritam Patnaik; Is it time to add glitter to your portfolio?

Pritam Patnaik, Head - Commodities, HNI and NRI Acquisition at Axis Securities Ltd said that the year 2022 for Bullion could prove to be another year of a tug-of-war between favorable and unfavorable factors, but the positives will outstrip the negatives.

With over 18 years of extensive experience in the banking and financial sectors, Patnaik is an expert in setting up commodity and currency businesses and nurturing corporate & HNI clients.

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In an interview with Zeebiz's Kshitij Anand, Patnaik said that Gold has historically underperformed in the months leading up to a US Fed tightening cycle, only to significantly outperform in the months, following the first rate hike. Edited excerpts:

Q) What is your outlook on Gold for the year 2022? 
 
A) The year 2022 could prove to be another year of a tug-of-war between favorable and unfavorable factors for Bullion.

Headwinds in the form of higher nominal rates and a potentially stronger dollar will be challenged by more supportive factors like adamant and persistent inflation, market volatility, owing to ever-evolving COVID variants, rapidly developing geopolitical hotspots and robust demand expectations from the central banks and jewellery segment.

In my opinion, the positives will outstrip the negatives.

Gold has historically underperformed in the months leading up to a US Fed tightening cycle, only to significantly outperform in the months, following the first rate hike.

Further, Gold has historically performed well amid high inflation. In years when inflation was higher than 3%, Gold’s price increased 14% on average.

Inflation continues to remain stubbornly high. The headline US CPI surged to the highest level in the last four decades, and core CPI registered the biggest advance in the last 31 years. In our opinion, simple central bank actions will not be good enough to reign in the inflationary trend.

Thus, in the days following the initial rate hikes, we could see positive price movement in Gold. From a price perspective, a long-term rate of $1930-50 in the international markets and Rs. 51,000-51500 on MCX is on the cards.

Q) What is your outlook on Silver for the year 2022? Will it hit Rs 70,000?

A) After a year of underperformance, investors could turn their attention back to Silver this year. The gold-silver ratio currently is at roughly 80:1, the average in the modern era has been between 40:1 and 50:1.

Historically, it is clear that silver is under-priced compared to Gold. At some point, this gap is sure to narrow. In such events, if Gold is going to rise, Silver is not only going to follow suit but could outperform gold.

Additionally, the industrial component in Silver may also contribute to the precious metal's rally. Demand consumption from the renewable sector will start to pick up sooner, as global economies stress the de-carbonization agenda.

The Silver Institute is projecting a supply deficit for the silver market in 2022, citing more industrial demand and global green infrastructure push, primarily led by electrification of the vehicle, 5G (mobile phone) technology, and solar panels demand.

Given this scenario, Rs 70000 in MCX silver is very much on the cards, but like Gold, the right time to enter Silver will be after the first few rate hikes.

Q) Crude is on a boil in 2022. What is causing a rise in crude oil and do you see it hitting $100/bbl?

A) The crude oil markets are on a roll owing to supply-demand mismatch coupled with Geopolitical tensions in key supply centres.

As worries about supply disruption is envisioned amidst concerns about Russia-Ukraine discord and rising tensions in the Middle East, it could make an already tight market even tighter.

OPEC continues with its forecast for robust growth in world oil demand in 2022 despite the Omicron coronavirus variant and expected interest rate hikes.

It said that it expects world oil demand in 2022 to rise by 4.15 million barrels per day (BPD), unchanged from last month.

Oil use will surpass the 100 million BPD mark in the third quarter, also in line with last month's forecast. OPEC+ has aimed to raise output by 400,000 BPD a month, with about 253,000 BPD of that due to coming from the 10 OPEC members covered by the deal, but production has increased by less than that as some producers struggle to pump more.

If the geopolitical situation worsens or we see a higher surge in demand, it could push the prices closer to the $100 mark.

De-escalation of the situation in Ukraine and UAE, growth in US shale production, thawing in US-Iran relationship, another Covid scare, and slowing economic activity due to higher interest regime, could derail this Bull Run in crude oil.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)