Global liquidity glut, Covid cloud push up metal prices

  1. MUMBAI: An unprecedented amount of funds being infused by central banks around the world is driving metal prices up. Gold is now at an all-time peak, silver’s price has more than doubled since its March low, and copper is up more than 40%. And if analysts and reports by industry experts are to be believed, the rally is far from over.
    Along with the central banks’ liquidity infusion steps, Covid-related uncertainties and US-China disputes at various levels are prompting demand for safe haven investments like the two precious metals. An expected weakness of the dollar against some of the major currencies is also driving investors towards gold and silver. The demand for copper, on the other hand, is due to expected industrial demand, mainly from China, as well as hoarding by the Asian giant in anticipation of a supply disruptions, analysts said.
    On the Chicago Mercantile Exchange (CMX), gold futures for September delivery rose to $1,950 per ounce, breaking a peak reached nine years ago at $1,927. International analysts are looking at the yellow metal to break above the $2,000 barrier soon. On the CMX, silver was at around $24/ounce, while copper was at $2.9/pound.

In India too, gold is trading at a new peak, at over Rs 52,000/10gm, while silver is at over Rs 65,000/kg level, and copper is at Rs 506/kg, data from MCX showed.
Motilal Oswal Commodities Broker head (commodities & currency) Kishore Narne said almost all asset classes are witnessing a liquidity driven rally due to fund infusions by central banks around the globe. “Assets that have given better returns in the last two years are attracting higher investor interest…and hence the strong rally in gold.” Gold, in the last two years, has given a return of 55%, CMX data showed, while S&P 500 has returned 11.3% and, back home, the sensex is slightly lower than what it was in end-July 2018.
Recently, Bank of America Securities had put out a report on gold with a price target of $3,000/ounce by end-2021. This, at current rupee-dollar exchange rate, would translate into a price of Rs 83,000/10gm in India. Narne has a price target of Rs 65,000 for the yellow metal by end 2021, but feels this price could be hit much ahead of that timeline.
The rally in silver is also attributed to its long under-performance. After rising to a peak at near $50 in late April 2011, it traded below $20 level for years and then dipped to a recent low at below $12 in late March from where the current rally started.
Copper, on the other hand, is a slightly different asset class compared to gold and silver. It finds wide use in manufacturing of electronics, electrical appliances and automobiles. Recently, due to the spread of Covid-infections in Peru and Chile, the two major copper ore suppliers, there are expectations some mines could close down and there would be some shortage of supply of the metal. “This is prompting some countries, especially China, to hoard this metal for future use and hence the strong rally,” Narne said.


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