As far as the rupee goes for 2024, on the domestic front, momentum will be driven by centre elections
and flows that will be attracted in the equity and debt segment. Now that India has positioned itself
in the JP Morgan bond index it is likely to attract flows to the tune of over $25billion. On the global
front, the Fed is near its peak for the tightening cycle and dot plot suggest that the Fed could even cut
rates thrice in 2024. The Fed has been quite vocal in highlighting that the ‘Data-Dependent’ will be the
approach going ahead. In 2024, the US is preparing for its Presidential elections that is scheduled at
the end of the year and is going to be one of the key events that will set the tone for 2025. As far as
the Dollar Index is concerned we expect the momentum to be marginally negative considering that
the Fed will remain dovish in their outlook and that would be triggered by softening economy. Active
intervention by the RBI could keep the volatility in check for the rupee and we expect it to trade in the
range of 81.00 and 85.00.
Precious Metal Outlook:
Gold-posted gains of ~13-15% YTD, Silver too has gained by more than 8% YTD on the back of, Geo-
political tensions, central banks action, whipsaws in Dollar Index and US Yields and few others, which
triggered a move in market. Central banks were active this year about interest rate hikes with an
objective to ease the inflation down. Along with central banks action, we witnessed a black swan
event this year as well raising the risk premium for safe haven assets. Let’s take a glance of how the
previous year was and what factors could influence prices in the 2024.
Central Banks Action
It has been a short and an aggressive journey for interest rates as major central bankers have
announced more than ~1700 bps of hikes since the start of last year. CPI of all major economies have
fallen from their recent peaks, amidst fall in energy and food prices and QT by central banks, however
the Core and Super Core CPI are still showing signs of worry.
After an upward journey for interest rates, market participants are now expecting a shift in the overall
stance, after the last Fed policy meeting in 2023. Governor Powell in Dec’23 policy meet signaled a
pivot, raised probability for three cuts in 2024, lowered the growth forecast and made little or no
change in inflation overview. Few fed officials however are not convinced with this dialogue and are
putting cold water on these expectations, mentioning that it’s too early to talk about rate cut and we
could see these higher rates for longer. Gold, Silver and other metals have already started to discount
a rate cut in March’24, it will now be important to see the balance between Growth and inflation and
the pace of interest rate cuts.
Geo-political Tensions
Since 2020, there have been one black swan event after other, like the pandemic, Russia-Ukraine war,
Israel-Hamas war, debt crisis; these have built-in the risk premium in gold. Geo-political tensions
always stimulate the safe haven appeal of gold and silver prices, these two assets always post a sharp
rally during the time of uncertainty or panic. It is interesting to see that not all these major events and
geo-political tensions have eased down peacefully – every uncertainty has been giving jerks to the
market form the sidelines at certain intervals. Do more countries like China-Taiwan get involved in
these wars like situation in the next year, is now important to see?
Growth concerns
Aggressive rate hikes and Geo-political tensions are primary triggers for increase in growth concerns.
Along with Fed, institutions like IMF, World Bank have also lowered growth forecast for next year;
along with debt servicing cost increasing, debt and spending limits were also hit in 2023, making
market participants nervous about this bubble bursting soon. There has been a lot of debate regarding
soft and hard landing post the rate hikes, however, Fed officials and US GDP data till now are building
optimism for a softer landing.
Central bank gold buying
Central banks purchased around 800 tonnes of gold over the first three quarters of 2023, 14% ahead
of the same period last year, according to data from the WGC. Last year, global central banks
purchased a record 1,136 tonnes of gold, compared to 450 tonnes bought in 2021, mostly driven by
a flight towards safer assets amid soaring inflation. Last year was not only the thirteenth consecutive
year of net purchases, but also the highest level of annual demand on record back to 1950.
Outlook
There surely are many factors to look at when we talk about the next year as along with monetary
policy changes, fluctuations in Dollar Index and economic data points could provide triggers in the
market. Even after such aggressive rate hikes, market participants will keep an eye on inflationary
concerns and Fed’s move accordingly. We have already seen impact of rate cuts kicking in Gold and
Silver prices however if data and inflation suggests otherwise and Fed does not ease the stance as
per market expectations, that could cap gains for safe haven assets. However, the risk premium on
the back of geo-political tensions, lower Dollar Index, higher rate cut expectations, slower growth
fears, inflows in ETF, central bank gold bank spree, development in China and green technology and
possible rupee deprecation could keep the floor strong
Base Metal Outlook:
Commodities had a very positive start to 2023, which was a good follow up from what we have seen
in 2021 and 2022, however the end was not as expected with the complex down for the year.
China’s reopening story has not gone as planned, with a number of weak spots in the economy,
particularly the property sector. Meanwhile, central bank tightening and a stronger US dollar have
provided strong headwinds to commodity markets.
The outlook for metals largely hinges on China, and the offtake in certain pockets looks quite
promising suggesting a revival in metals demand. In addition, LME base metal inventories have
edged higher in recent months from multi year lows, easing concerns over tight markets in the short
term, although on a historical basis, exchange inventories are still tight.
For 2024, most base metal markets are expected to keep swinging between a smaller surplus and
deficit quite easily, depending on how demand plays out. Longer term fundamentals for most metals
and historically tight inventories suggest that there could be some positive upside, despite largely
balanced markets.
LME metal prices have been quite volatile with a positive start to the year, followed by a fall for
much of the year, ending with flatter returns. Global monetary tightening, Chinese
underperformance has weighed on developed economies. However, supportive fundamentals,
lingering geopolitical risks and expectations of Federal Reserve easing suggest the metal basket will
trend higher next year. Medium term trend looks promising as demand from green industries will
continue to grow.
