Motilal Oswal Financial Services forecasts a bullish outlook for silver, projecting prices to reach Rs 1,25,000 domestically within 12-15 months. Despite recent gains of over 30%, analysts anticipate periodic profit-taking, advising investors to capitalise on any significant dips in prices.
Key support levels identified by Motilal are near Rs 86,000-86,500. The upward revision of price targets reflects robust demand amid geopolitical tensions and economic uncertainties.
Factors affecting silver prices
Major Central Banks’ Action
The U.S. Federal Reserve, having raised rates to approximately 5% from near-zero levels, maintains a cautious stance amid easing inflation pressures. Market expectations for a rate cut in September 2024 stand at around 70%, contrasting the Fed’s current position. This divergence underscores uncertainty in monetary policy’s future direction and its impact on precious metals.China and its impact on silver
China’s role as a major consumer and producer of industrial metals influences global silver markets significantly. Despite economic challenges stemming from extended lockdowns and property sector distress, prospects of stimulus measures by the People’s Bank of China and robust imports hint at potential market stability. Geopolitical tensions, including U.S. elections and Middle Eastern conflicts, further elevate silver’s safe-haven appeal.
Silver demand & supply
Demand for silver is poised to grow modestly in 2024, driven by industrial applications, while supply constraints persist due to mining challenges. With deficits expected to continue for the fourth consecutive year, the market balance favours higher prices as demand outstrips supply. Recycling incentives remain insufficient to alleviate supply shortages, emphasising ongoing market tightness.
Manav Modi, Senior Analyst – Commodity Research at Motilal Oswal Financial Services, said, “Total supply is expected to fall by ~1% from 2023 to 2024 whilst the total supply in 2024 is expected to be approximately 1004 tonne, which is similar to the level observed in 2021. Mine production is expected to decrease by 1% from the previous year to 823.5 tonnes in 2024. This decrease is attributed to challenges in mining operations leading to increased supply constraints.”
“Interestingly, life-time high prices at the domestic front seem unfavourable in terms of recycling, which indicates that the incentives for recycling are not strong enough to significantly increase supply. Demand for silver is projected to exceed its supply for the fourth consecutive year in 2024. This suggests that the market balance for silver will remain in deficit, contributing to potentially higher prices as demand outpaces supply. Overall, these factors indicate a challenging supply situation for silver in 2024, with production constraints from mining and ongoing deficits in market balance driving the market dynamics,” Modi added.
In conclusion, Motilal Oswal notes that silver has shed its sluggish reputation this year, posting a year-to-date surge of approximately 30%. Despite market agility, silver aims to outperform gold amidst investor concerns about potential Fed rate cuts. Recent Fed decisions signal a more cautious approach, with a single rate cut expected in 2024, down from earlier projections.
Weak U.S. economic data has bolstered precious metals, with a 70% likelihood of a rate cut in September. Geopolitical tensions continue to inject volatility into the market. Domestic silver imports for 2024 have risen sharply by approximately 4000 tonnes. While ETF flows remain modest, speculative buying supports prices. The Silver Institute forecasts a market deficit, buoyed by positive signals from China’s economy and industrial demand.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times.)