NEW DELHI: Gold and silver prices witnessed dramatic swings this week, thanks to huge demand followed by a bout of profit booking, and this has kept bullion traders on their toes. Analysts are at a loss trying to predict where these precious metals are headed.
Gold futures hit a record high at the start of the week, at a level above Rs 56,000 only to plunge below Rs 50,000 on Wednesday, marking a drop of over 10 per cent. Similarly, silver futures traded close to Rs 78,000 earlier this week but tanked to Rs 61,000 level, a drop of nearly 22 per cent, on Wednesday.
Both counters have since recovered some bit. The yellow metal traded near the Rs 52,000 mark on Thursday, while the white metal moved close to Rs 67,000 mark.
So, how does one predict price movements in these metals in the coming days?
One indicator that has historically been used by traders to determine their price trajectories has been the gold-silver ratio. This ratio represents the number of ounces of silver required to buy a single ounce of gold.
Given the high volatility, the relevance of this ratio may have been diluted, but traders can still get some hint about how both counters are poised. The conclusion is, the rally in silver may slow down now and there is scope to make money over there.
Gnanasekar Thiagarajan, Director at Commtrendz, said the ratio is showing that silver is not overvalued and more or less neutral. “Gold will continue to go up. Silver will follow, but in a muted way, not like how we saw recently. In dollar terms, gold price target is at $2,100 in the near term and $2,350 by December. Silver will hit $30 in the short term and $33 by December. In rupee terms, gold may hit Rs 65,000 before Diwali and silver Rs 90,000,” he said.
In international markets, gold traded around the $1,930 an ounce mark, while silver was at $26 per ounce on Thursday. Silver is up 45 per cent year to date, outperforming gold which has advanced 27 per cent in the same period,
Hareesh V, Head of Commodity research at Geojit Financial Services, said the recent rally in silver had no fundamental basis. “It soared in a purely speculative move and tracked the momentum in gold, which brought the gold-silver ratio lower,” he said.
“We are still positive on gold; it may hit $2,280 or Rs 62,000-62,000 in a year. But we expect a correction in the near term. On silver, we are not bullish. We had a target of Rs 75,000 which has already been hit,” he said.
Prathamesh Mallya, AVP for Research (Non Agri Commodities and Currencies) at Angel Broking said the gold-silver ratio is hovering in the stable range at 75-80 and does not indicate much on what the strategy needs to be. “But investors who anticipate where the ratio is going to move can make a profit even if the price of the two metals fall or rise,” he said.
“Traders can use the ratio to hedge their bets in both metals; taking a long position in one, while keeping a short position in the other. When the ratio is higher and investors believe it will drop along with the price of gold compared with silver, they may decide to buy silver and take a short position on an equivalent amount of gold,” he said.