Informist, Tuesday, Apr 16, 2024
--Ajay Kedia: See silver at 150,000 rupees/kg in year and a half
--CONTEXT: Kedia Advisory Director Ajay Kedia's comments in interview
--Ajay Kedia: See $2,700/oz as 'fair' price for gold
--Ajay Kedia: Gold unlikely to fall to $1,800-$1,900/oz levels
--Ajay Kedia: Investors can still start buying gold via SIP
--Ajay Kedia: LME copper can touch $12,000/tn in one year
--Ajay Kedia: WTI crude oil could rise to as high as $95-$96/bbl
--Ajay Kedia: Govt must curb excessive speculation in agri products
By Sandeep Sinha, Taniva Singha Roy and Romeo M. Raj
MUMBAI – The sharp rise in demand from green industries, along with investment demand, could push silver prices to 150,000 rupees per kg and make the white metal more attractive than gold, said Ajay Kedia, director at Kedia Advisory. "The current fundamental for silver remains strong and investors who have missed the rally in gold can eye for silver whose prices in the domestic market can really test 150,000 rupees per kg in a year-and-a-half," Kedia told Informist in an interview.
Silver prices had hit a lifetime high of 86,126 rupees per kg on the Multi Commodity Exchange on Friday and are currently around 83,600 rupees per kg.
Today, a lot of silver is used in solar panels, electric vehicles, fifth-generation technology and electronic items, which has led to a rapid increase in industrial consumption as compared to earlier years, when the industrial demand for silver came mostly from the photography industry.
Currently, the gold-silver ratio is around 83. This level surged to 126 in 2020, because of the COVID-19 lockdown and the US-China trade war. Whenever this ratio comes down, silver is generally seen to outperform gold. "If this ratio comes down towards 72, we think silver can double from here," Kedia said.
India's silver imports in the first two months of this year had risen to 2,932 tn. On the contrary, last year, India imported 3,625.4 tn. The rooftop solar programme announced in the Interim Budget on Feb 1, at an investment of 750 bln rupees to provide 300 units of free electricity, is also likely to boost silver demand.
GOLD RALLY
The expectations of rate cuts by the US Fed, continuous buying by central banks due to currency deterioration and ongoing geopolitical tensions are likely to support gold, he said. "I mean to say, whatever the factor which should support gold is currently having a perfect blend," Kedia added.
During the global financial crisis in 2007-2008, bullion prices more than doubled to $1,980 per ounce from $680 per ounce because of quantitative easing (QE1 and QE2). "This time, the rally had started from $1,800 only. So, that is the power of gold, that it can double from here also. Conservatively, we expect $2,700/oz as a fair price of gold."
According to Kedia, gold prices could dip after the sharp rally in the last 40 days. However, he doesn't expect prices to fall to $1,800-$1,900 per ounce level as factors such as geopolitical tensions and de-dollarisation have been supporting gold.
When asked if investors have missed the rally in gold prices, he said the rally in gold has not yet started. "I think prices are going to be more on the higher side. Investors who missed the recent 40-day rally in gold can do a SIP (Systematic Investment Plan) in gold."
BASE METALS
Along with gold and silver, the analyst is bullish on base metals too. With the Chinese economy showing signs of recovery, consumption will improve and push base metal prices higher. Amongst all base metals, he is most bullish on copper. Copper prices on the London Metal Exchange are around $9,500 per tn and the rally started around $8,000 per tn. An increase in industrial demand, particularly the electric vehicle industry, should see the red metal easily test $12,000 per tn on LME in another one year, he said.
Moreover, supply side concerns such as closure of production at Cobre copper mine in Panama, lower output in Chile and Peru amid demand from the green energy sector will also aid the prices. "I think $12,000 on LME is easily achievable for the next one-year period." Talking about zinc, Kedia expects surplus supply to weigh on prices. Currently, zinc prices on the London Metal Exchange are around $2,720 per tn. With improvement in demand, prices are likely to move to around $3200-$3250 per tn and could even touch $3,400 per tn.
ENERGY
When asked about crude prices, Kedia said the next six months are going to be very crucial as 2024 is an election period. More than sixty countries are having elections this year. A tug of war situation is going on as of now in terms of crude oil, with the Organization of the Petroleum Exporting Countries and its allies continuously in favour of supporting prices and the US trying to push prices downward, he added. Oil prices will be at an elevated level, but as of now, the levels are seen at $95-$96 on the higher side, Kedia said. One of the factors that can weigh on the prices of crude oil is an increasing push towards renewable energy sources.
EQUITY
On the Indian equity market, Kedia is bullish on the banking sector, especially public sector banks, as growth is coming from tier-2 and tier-3 cities. He also likes aviation and railway stocks because of the stability in crude prices and the boom in the tourism sector. "The long term view is that the Indian equity market is going to be on a higher side as compared to global equity. But, I am expecting a correction in the equity space in the next six-eight months," he said.
TRADING BAN
When asked about the ban on trading in seven agri-commodities, he said that there is a high chance that the government will revoke the ban after elections. "The government's priority is not trading but to stabilise prices." However, they should rethink the ban or at least should allow futures trading for hedging purposes, Kedia said.
Generally, due to trading, some speculative movement comes into play which contributes to a spike in prices of commodities in the domestic market. There are many other commodities, such as barley and sugar, which are not traded on exchanges and prices have been soaring even then. "I think the fluctuation of prices totally depends upon the demand and supply."
In the futures market there are farmers, stockists and speculators also. These speculators will try to bring out profit in the given market conditions which cause the volatility in the market, but these speculators are also a part of the value chain participants in the global market, as they provide liquidity to the market, he said. "The government should reconsider the trading ban by implementing some protocol to curb excessive speculation."
AGRI COMMODITIES
Several agri-commodities have seen a surge in spot prices in the past few months owing to erratic weather, lower areas under cultivation, artificial scarcity created by stockists and farmers constantly shifting to different crops.
Due to lower production and hoarding of stocks by stockists, the government has started to put a stock limit on pulses. Even though measures like applying stock limits could increase its availability in some ways, the government has to take steps to increase production. The area under cultivation needs to be increased. "Farmers have been dynamically changing their crop. I think we need to have a strong policy or incentive policy for farmers, otherwise, the deficit would persist," Kedia said.
Another commodity which saw soaring prices reaching almost an all-time-high is turmeric. The area under turmeric cultivation has dropped significantly and farmers have shifted to sugar, pomegranate, and guava. The rapid change in weather leading to a 30-35% drop in the area, yield falling 25-30% due to less rainfall last year, and export demand steadily improving, have all supported turmeric prices. Prices have risen from 13,000 rupees per 100 kg to 20,000 rupees per 100 kg.
Consumption and artificial consumption such as the opening up of various food chains has increased the demand, which is why we are bullish on turmeric, he said. "It should be consolidating but slowly and steadily it will again head towards newer highs,” Kedia added. End
US$1 = 83.54 rupees
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